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Which of the following statements is correct? Question 16 options: The central bank sets the policy...

Which of the following statements is correct?

Question 16 options:

The central bank sets the policy rate in order to maximise its profits.

The supply of base money entirely depends on how many transactions commercial banks have to make.

When savers buy bonds they are lending money in the money market.

The central bank intervenes in the money market by committing to lend whatever quantity of base money is demanded at the current bank lending rate.
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Answer #1

The central bank is committed to maintain price stability and maximum employment and its decisions are not aimed at maximizing its own profit. Monetary base depends upon currency in circulation and reserves of the banking system. intervention by the central bank takes the form of changing the discount rate reserve requirement for conducting open market operations of buying and selling government securities. However it is true that when household by bonds which are issued by firms and the government they are actually supplying their funds in the market.

Correct choice is When savers buy bonds they are lending money in the money market.

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