Question

To increase the money supply, the central bank can:

(a) Cut taxes
(b) Purchase bonds in the open market
(c) Encourage people to hold more cash (currency in circulation)
(d) Increase government spending

Answer 1

To increase the money supply, the central bank can purchase bonds in the open market, injecting money into the economy.

Step-by-step explanation:

To increase the money supply, the central bank can purchase bonds in the open market. When a central bank buys bonds, money flows from the central bank to individual banks in the economy, increasing the money supply in circulation. For example, if the central bank buys $1 million worth of bonds, that amount of money is injected into the economy.