What are the main tools used by central banks?

What are the main tools used by central banks?

Central banks primarily use tools like interest rate adjustments, open market operations, and reserve requirements to manage the economy.

How do interest rate adjustments affect the economy?

When central banks raise interest rates, borrowing becomes more expensive, which can slow down economic growth. Lowering rates can stimulate spending.

What are open market operations?

Open market operations involve the buying and selling of government securities to influence the money supply and interest rates.

Can you explain reserve requirements?

Reserve requirements are regulations on the minimum amount of reserves that banks must hold against deposits, affecting their ability to lend.

What impact do these tools have on inflation?

Central banks use these tools to control inflation by managing the money supply; increasing it can lead to inflation, while decreasing it can help reduce inflation.