Question

how does the central bank affect supply of money?

Answer 1

The methods that central banks use to control the quantity of money vary depending on the economic situation of the country and the world and power of the central bank.

Some of the methods used by central banks are:

• Influencing interest rates - low interest rate means people will save less and consume more.
• printing money - more money means more expenditure but decline in country's currency
• setting bank reserve requirements - high reserve requirements means low money in circulation
• Other tactics central banks use include open market operations and quantitative easing, which involve selling or buying up government bonds and securities.

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