Multiple choice

During the depression, it is advisable to

  1. decrease bank rate and purchase securities in the market

  2. increase bank rate and purchase securities in the open market

  3. decrease bank rate and sell securities in the open market

  4. increase bank rate and sell securities in the open market
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

During a depression (economic downturn), central banks use expansionary monetary policy to stimulate the economy. Decreasing the bank rate makes borrowing cheaper, and purchasing securities in the market injects money into the economy (quantitative easing). Both actions together encourage lending and spending. Options B and D increase the bank rate, which would be contractionary. Option C sells securities, which also removes money from circulation.

Keep practicing — related questions