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 Form 4 online business studies lessons on inflation

Monetary policies that control inflation

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Answer Text:
Monetary policies that control inflation:
-Open market operations: where the central bank sells treasury bills and bonds to the public. This removes money from circulation to reduce inflation.
-Bank rate: increase in bank rate increases the cost of money. This raises the interest rates charged by
commercial banks and discourages borrowing.
-Special deposits: the central bank may raise the cash ratio or liquidity. This reduces the money commercial banks have to lend.
-Selective credit control:loans are given to selected projects which are important and less inflationary.
-Reserve requirement:the central bank raises the cash ratio or liquidity ratio. This reduces the ability of commercial banks to create deposits.