BUSINESS ECONOMICS Essay Example | Topics and Well Written Essays - 1750 words

BUSINESS ECONOMICS - Essay ExampleOpen foodstuff operations involves the buying back or selling of government securities. Of the government wants to increase the tot up of bullion it will buy back the securities it has sold to pecuniary institutions in exchange of currency that will then be circulated in the market in the form of investments or lending. If the government wants to decrease the money supply it will sell its securities and holding onto the money that was previously in circulation. Another way to control money supply is to adjust the rate of lending at which the swans can obtain loans from the central bank or other banks. Higher rate will result in low borrowing and hence tightened money supply and vice versa. Lastly, Cash Reserve requirement is also adjusted in order to control money in circulation. Cash reserve is the list of funds that the financial institutions are required to keep aside. This is a percentage of the total deposits and higher cash reserve requir ement allows banks to lend out little funds. Similarly lower cash reserve requirement enables banks to have more funds to lend out.Un stodgy tools of money supply include the central banks commitment to keep rates low in the future. Another means is to adjust the central banks assets to provide ease in credit through the change in different rates and prices. Third unconventional way is lower the policy rate to zero by give reserves that are more than the required rate (Highered.mcgraw-hill.com, 2011).Money supply is a crucial aspect that determines the value of currency and inflationary measures. Conventional shipway are the standard means for the central bank to control money supply. However, if the economic conditions do not permit the central bank to use the conventional means they resort to unconventional means which are effective but not good for the economy in the long run due to their irregular and risky nature.(b) In a 2012 study the International Monetary Fund (IMF) repo rted that the fiscal