The sentence that best completes the diagram is: The money supply increases
What causes the money supply to increase?
The money supply can increase due to various actions taken by central banks, financial institutions, and governments. Some key factors contributing to an increase in the money supply include:
Open Market Operations: Central banks buying government securities injects funds into the banking system, enabling increased lending and expanding the money supply.
Lowering Reserve Requirements: Reducing the amount of reserves banks are mandated to hold allows more money to be available for lending, leading to an expanded money supply.
Decreasing Discount Rate: Lowering the interest rate at which banks borrow from the central bank encourages increased borrowing, leading to expanded lending and an increased money supply.