Get premium membership and access questions with answers, video lessons as well as revision papers.
Open market operations: When the bank sells securities to be bought by members of the public, the buyers will pay by writing cheques on their accounts with commercial banks. This means a cash drain for these banks to the central bank. Conversely, if the central bank wanted to pursue an expansionary monetary policy by making more credit available to the public, it would buy bonds from the public.
Discount rate/bank rate: This is the rate on central bank advances and is also called official discount rate or “minimum lending rate”. The significance of this rate of interest charged by the central bank in one way or the other to commercial banks, as a lender of last resort, is that if this rate goes up the commercial banks, who find that their costs of borrowing have increased, are likely to raise their rates of interest on their learning to businessman and other borrows.
Supplementary reserve, requirements/special deposit
If the Central bank feels that there is too much money in circulation, it can in addition require commercial banks to maintain over and above cash or liquid assets some additional reserves in the form of Special Deposits. The commercial banks are asked to maintain additional deposits in their accounts at the central bank, deposits which cease to count among their reserve asses as cover for their liabilities.
Direct control and moral Suasion
The central bank can attempt simply to use “moral suasion” to persuade the commercial banks to restrict credit when they wish to limit monetary expansion.
General and Selective Credit control
The central bank can dictate a ceiling value to the amount of deposits the bank can crate. This is more effective in controlling bank leading than the cash and liquidity ratio. It can also encourage banks to lend more to certain sector of the economy (e.g. agriculture) than in another (estate building).
maurice.mutuku answered the question on June 28, 2017 at 12:53
- What is frictional unemployment?(Solved)
Describe frictional unemployment.
Date posted: June 28, 2017. Answers (1)
- What is seasonal unemployment?(Solved)
Describe seasonal unemployment.
Date posted: June 28, 2017. Answers (1)
- What is involuntary unemployment?(Solved)
Describe involuntary unemployment.
Date posted: June 28, 2017. Answers (1)
- What is Cyclical unemployment?(Solved)
Describe Cyclical unemployment.
Date posted: June 28, 2017. Answers (1)
- What is structural unemployment?(Solved)
Describe structural unemployment.
Date posted: June 28, 2017. Answers (1)
- What are the other methods of price determination other than price mechanism in a market?(Solved)
Give the other methods of price determination other than price mechanism in a market.
Date posted: June 28, 2017. Answers (1)
- Why do citizens experience low standards of living despite improvement in the per capita income?(Solved)
Explain the reasons why citizens experience low standards of living despite improvement in the per capita income.
Date posted: June 28, 2017. Answers (1)
- What benefits does a country derive from transporting oil through pipeline?(Solved)
Discuss the benefits that a country derives from transporting oil through pipeline.
Date posted: June 28, 2017. Answers (1)
- What factors does one need to consider when selecting an office layout?(Solved)
Explain five factors that one needs to consider when selecting an office layout.
Date posted: June 28, 2017. Answers (1)
- What is the difference between a public corporation and a private limited company form of business?(Solved)
Explain the features that differentiate a public corporation from a private limited company form of business.
Date posted: June 28, 2017. Answers (1)
- Why would a business firm prefer to operate a current account from a commercial Bank?(Solved)
Highlight the reasons why a business firm would prefer to operate a current account from a commercial Bank.
Date posted: June 27, 2017. Answers (1)
- What factors may account for predominant direct production in a country?(Solved)
List factors that may account for predominant direct production in a country.
Date posted: June 27, 2017. Answers (1)
- What features differentiate a bill of exchange from a cheque?(Solved)
Name features that differentiate a bill of exchange from a cheque.
Date posted: June 27, 2017. Answers (1)
- Which reasons have made the government of Kenya to aggressively develop the transport industry?(Solved)
Explain the main reasons which have made the government of Kenya to aggressively develop the transport industry.
Date posted: January 21, 2017. Answers (1)
- Give factors that determine the premiums paid in property insurance(Solved)
Name five factors that determine the premiums paid in property insurance.
Date posted: January 21, 2017. Answers (1)
- Through which ways can the government influence the price of a commodity?(Solved)
Name ways through which the government can use to influence the price of a commodity.
Date posted: January 21, 2017. Answers (1)
- What factors may influence the success of a business?(Solved)
Describe factors that may influence the success of a business.
Date posted: January 21, 2017. Answers (1)
- Rehasoft Ventures is a manufacturing firm which had decided to increase its business capacity(Solved)
Rehasoft Ventures is a manufacturing firm which had decided to increase its business capacity. Explain four challenges that it may face.
Date posted: January 21, 2017. Answers (1)
- What are the advantages of shopping malls to consumers?(Solved)
Explain the advantages of shopping malls to consumers.
Date posted: January 21, 2017. Answers (1)
- Explain the factors that may influence an entrepreneur on the decision of the products to provide in the market(Solved)
Explain five factors that may influence an entrepreneur on the decision of the products to provide in the market.
Date posted: January 21, 2017. Answers (1)