BUSINESS ECONOMICS Essay Example | Topics and Well Written Essays - 1750 words

BUSINESS ECONOMICS - Essay Example blunt market operations involves the buying back or selling of government securities. Of the government wants to incr comfort the confer of currency it bequeath buy back the securities it has sold to financial institutions in exchange of currency that will then be circulated in the market in the form of investments or changeing. If the government wants to decrease the money supply it will sell its securities and holding onto the money that was previously in circulation. Another mien to go through money supply is to adjust the rate of lending at which the bevels can obtain loans from the central bank or other banks. Higher rate will result in low borrowing and consequently tightened money supply and vice versa. Lastly, Cash Reserve requirement is also adjusted in company to control money in circulation. Cash reserve is the amount of funds that the financial institutions are undeniable to keep aside. This is a percentage of the total deposit s and higher cash reserve requirement allows banks to lend come in less funds. Similarly lower cash reserve requirement enables banks to have more funds to lend out.Unconventional tools of money supply include the central banks commitment to keep grade low in the future. Another elbow room is to adjust the central banks assets to provide ease in credit through the change in different rates and prices. Third unconventional way is lower the policy rate to zero by supplying reserves that are more than the postulate rate (Highered.mcgraw-hill.com, 2011).Money supply is a crucial aspect that determines the value of currency and inflationary measures. stuffy ways are the standard means for the central bank to control money supply. However, if the economic conditions do not permit the central bank to use the conventional means they resort to unconventional means which are effective but not good for the economy in the long run imputable to their unpredictable and risky nature.(b) In a 2012 study the International Monetary Fund (IMF) reported that the fiscal