The Reserve Bank of Glassen is the apex banking institution in the country of Glassen.Money supply in Glassen will increase when:

A) the Reserve Bank of Glassen buys bonds from commercial banks.
B) the Reserve Bank of Glassen raises the required reserve ratio for commercial banks.
C) the Reserve Bank of Glassen sells government bonds to commercial banks.
D) the Reserve Bank of Glassen raises the discount rate for commercial banks.
E) the Reserve Bank of Glassen prints new checks.

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bevilyn olodin · Accepted Answer

Final Answer : A, Explanation :  When the Reserve Bank of Glassen buys bonds from commercial banks, it increases the money supply in the economy as it injects new money into the system. This is known as an expansionary monetary policy. The other choices would actually decrease the money supply or have no impact on it. Increasing the required reserve ratio for commercial banks would reduce the amount of money they can lend out and therefore decrease the money supply. Selling government bonds to commercial banks would also decrease the money supply as the banks would have less money to lend out. Raising the discount rate for commercial banks would discourage them from borrowing from the central bank and therefore reduce the amount of money they can lend out. Printing new checks on its own does not increase the money supply unless they are backed by assets such as gold or foreign currency.

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