Which of the following is an example of expansionary monetary policy by the Central Bank of Nigeria?

Step 1: Analyze the question We need the option that is expansionary monetary policy carried out by the Central Bank of Nigeria (CBN). Two things matter here:

• It must be monetary policy (controlling money supply and interest rates), not fiscal policy.
• It must be expansionary (increasing money supply and encouraging spending and lending).

Step 2: The concept Monetary policy tools of the CBN:

| Tool | Expansionary (increases money supply) | Contractionary (reduces money supply) | |---|---|---| | Monetary Policy Rate / discount rate | Lower it | Raise it | | Cash reserve ratio | Lower it | Raise it | | Open market operations | Buy securities | Sell securities |

Step 3: Evaluate each option

• A. Lowering income taxes: This is expansionary, but it is fiscal policy (done by government through taxation), not monetary policy. Wrong.
• B. Increasing the discount rate: Borrowing from the CBN becomes more expensive, so banks lend less. This is contractionary. Wrong.
• C. Increasing the reserve ratio: Banks must keep more cash with the CBN, leaving less to lend. This is contractionary. Wrong.
• D. Buying Treasury securities from commercial banks: The CBN pays banks cash, so banks' reserves rise. They can then lend more, and the money supply expands. This is expansionary open market operations. Correct.

Step 4: Answer

Exam tip: Remember "Buy = Boost". When the CBN buys securities, money flows into the banking system. When it sells securities, money is drawn out. Also, whenever you see tax or government spending, think fiscal and not monetary, even if it is expansionary.