Describe four measures that the Government may put in place to reduce the amount of money in circulation. (8 marks)

Describe four measures that the Government may put in place to reduce the amount of money in circulation.

Measures that the Government may put in place to reduce the amount of money in circulation.

1. Compulsory deposits/special deposits/increase minimum reserve requirements The Central bank may require that commercial banks deposit a certain amount of their cash with the central bank.
2. Selective credit control/credit rationing. The government through the central bank may require that certain sectors of the economy be assisted financially.
3. Open market operations. The government may instruct the central bank to sell
4. government securities/stocks/bonds in the open marker/stock exchange.
5. Raise interest rates - High interest rates may be offered for savings to encourage more deposits.
6. Raise cash/liquidity ratio thereby leaving commercial banks with less money to lend.
7. Raising the bank rate leading to credit/loans becoming more expensive.
8. Raising margin requirement to discourage borrowing.
9. Moral suasion by government appealing to commercial banks to reduce lending to the public.
10. Reducing government expenditure by suspending sonic projects.
11. Raising taxes to reduce disposable income hence lower purchasing power.
12. Surplus budgeting by spending less than the income raised. 

​​Related Business Studies Quiz and Answers on Inflation Form 4 Level

Read More