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WAEC SSCE - Economics - 2008 (Objective)

Question 1 Report

The Central Bank can restrict credit through
Answer Details
The Central Bank can restrict credit through open market operations. Open market operations refer to the buying and selling of government securities in the open market. When the Central Bank sells government securities, it reduces the amount of money in circulation, making it more expensive to borrow money, which can restrict credit. Conversely, when the Central Bank buys government securities, it increases the amount of money in circulation, making it less expensive to borrow money, which can stimulate credit. Therefore, the Central Bank can restrict credit by selling government securities in the open market, which reduces the amount of money in circulation and makes borrowing more expensive.
Read lesson note on Banking (JAMB)
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