Final answer:
A central bank can increase the quantity of money in the economy by implementing expansionary monetary policy, such as lowering interest rates or conducting open market operations.
Step-by-step explanation:
A central bank that wants to increase the quantity of money in the economy can do so by implementing expansionary monetary policy. This involves actions such as lowering interest rates, conducting open market operations by buying government bonds, or reducing reserve requirements for banks. These measures increase the money supply, making it easier for individuals and businesses to borrow and spend.
For example, when a central bank lowers interest rates, it encourages borrowing and investment, which stimulates economic activity. This leads to an increase in the quantity of money circulating in the economy.
However, it is important for central banks to carefully manage the money supply to avoid excessive inflation or other negative consequences. Monetary policy decisions are influenced by factors such as inflation rates, economic growth, and the stability of the financial system.