An Instrument used by the central bank to fix commercial and merchant banks total credit to domestic economy is________

Step 1: Analyze the question The question asks for the instrument a central bank uses to fix (set a limit on) the total credit that commercial and merchant banks can give to the domestic economy. The key word is "fix a total", meaning a cap or limit on lending.

Step 2: Explain the concepts

• Monetary policy: This is the overall framework of actions by the central bank to control money supply and interest rates. It is a policy, not a specific instrument.
• Fiscal policy: This is the government's use of taxation and spending. It is not a central bank tool.
• Credit ceiling: This is a direct (quantitative) control. The central bank sets a maximum amount of loans and advances that banks may give, either in total or to particular sectors.
• Open market operation (OMO): This is the buying and selling of government securities to adjust liquidity in the banking system. It influences credit indirectly and does not fix a total amount.

Step 3: Solve

• The question speaks of an instrument, which rules out A (a broad policy) and B (not central bank).
• OMO (D) influences bank reserves, but it does not set a fixed limit on credit.
• A credit ceiling is exactly a limit placed on the total credit banks can extend.

Step 4: Answer The correct option is C. credit ceiling.

Tip: In JAMB Economics, when you see words like "fix," "limit," or "maximum" connected with bank lending, think credit ceiling. When you see "buying and selling of government securities," think open market operation. Remember that "monetary policy" is the whole strategy, while credit ceiling, OMO, and the cash reserve ratio are the tools used within it.