Question on: JAMB Economics - 1994
Monetary policy aimed at reducing demand-pull inflation in the country maybe carried out through?
A
increase in taxation of private companies, public corporations and private individuals
B
increase in cash reserve ratio of commercial banks and the sale of government securities
C
decrease in goverment expenditure on education
D
direct price control in the market place
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Correct Option: A
To reduce demand-pull inflation, monetary policy tools are used to decrease the money supply and/or increase interest rates, thereby reducing aggregate demand.
* **Increase in cash reserve ratio of commercial banks:** This reduces the amount of money banks can lend out, thus decreasing the money supply.
* **Sale of government securities:** This removes money from circulation as individuals and institutions purchase the securities, thereby reducing the money supply.
Other options are incorrect for the following reasons:
* **A:** Increase in taxation is a fiscal policy measure, not monetary policy.
* **C:** Decrease in government expenditure is a fiscal policy measure.
* **D:** Direct price control is generally not an effective long-term solution and is not a monetary policy tool.
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