WAEC Economics 2021 Theory — Question 22

Model answer

(i) Open Market Operations (OMO): the Central Bank buys or sells government securities. To increase money supply, it buys securities from the public (injecting cash); to reduce money supply, it sells securities to the public (withdrawing cash). (ii) Bank Rate: the Central Bank raises or lowers the interest rate it charges commercial banks. Lowering the bank rate makes borrowing from the Central Bank cheaper, encouraging commercial banks to lend more, increasing money supply; raising the bank rate discourages borrowing/lending, reducing money supply.