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3. In case of recession, what should a central bank do to carry out the monetary...

3. In case of recession, what should a central bank do to carry out the monetary policy using monetary policy instruments: list the three policy instruments and for each of these three instruments, explain how such an instrument can be used to curb hyperinflation.

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Answer #1

Ij case of recession central bank adopt an expansionary monetary policy by using following tools :

  • Reducing overnight interest rstes
  • Reducing CRR and SLR
  • Buying back government securities and Tbills using Open Money markets operations.

In situation of hyperinflation, central bank adopt contractionary monetary policy through :

  • Increasing interest rates
  • Increasing CRR and SLR and Reverse repo rate
  • Selling government securities and Tbills.

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