What are the three tools of the Central Bank? Explain how each can be used to increase the money supply. The Three Tools of the Central Bank: Exploring How They Can Increase the Money Supply

The Three Tools of the Central Bank: Exploring How They Can Increase the Money Supply

Central banks are responsible for the management of a nation’s monetary policy, and they have three primary tools to do this. These tools allow central banks to control the money supply, which in turn can influence inflation, economic growth, and employment. The three tools of the Central Bank are open market operations, the discount rate, and reserve requirements. Open market operations are the buying and selling of government securities by the Central Bank (Kochergin & Yangirova, 2019). By buying securities, the Central Bank increases the money supply. This is because the securities are bought with money, and when the Central Bank pays for the securities with money, it adds to the money supply. Similarly, when the Central Bank sells securities, it takes money out of circulation, decreasing the money supply. The discount rate is the rate at which banks can borrow from the Central Bank. When the discount rate is lowered, banks are more likely to borrow money from the Central Bank, increasing the money supply (Kiff et al., 2020). When the discount rate is increased, banks are. Cont…