In what way does a central bank increase the money supply in an economy?

In general, modern central banks such as the ECB or BoE tend to use interest rate targeting as a way of tightening or loosening monetary policy, however occasionally the money supply is manipulated instead. This occurs through the use of open market operations. This entails the purchasing or selling of bonds in the public markets (using created currency in the case of buying). When buying bonds new money is put into the financial system leading lower interest rates and hence a boost in consumption, and when selling money is taken out of the system shifting the money supply curve left and raising rates.

ER
Answered by Edward R. Economics tutor

2229 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Evaluate the impact of the increase in the number of public sector employees on the UK economy (12)


If mpc = 0.6, what will be the final change in National Income arising from an initial increase in Investment of £200m?


What is fiscal policy?


Explain what is meant by a semi-fixed exchange rate? With reference to the BBC news story in the link below, explain why the Nigerian central bank increased interest rates and devalued their currency (the naira)?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning