Money supply will increase when the Central Bank

Step 1: Analyze the question We are asked which action by the Central Bank leads to an increase in money supply. This is about monetary policy tools.

Step 2: The concept The Central Bank controls money supply through three main tools:

• Open market operations (OMO): buying or selling securities (such as treasury bills and government bonds).
• Reserve requirements: the percentage of deposits banks must keep with the Central Bank.
• Bank rate (Monetary Policy Rate in Nigeria): the rate at which the Central Bank lends to commercial banks.

Expansionary (money-increasing) policy: buy securities, lower reserve requirements, lower the bank rate. Contractionary (money-reducing) policy: sell securities, raise reserve requirements, raise the bank rate.

Step 3: Check each option

• A. Buys securities from the public. The Central Bank pays the public (and banks) with money. Cash flows into the economy and bank deposits rise, so banks can lend more. Money supply increases. ✔
• B. Increases reserve requirements. Banks must keep more with the Central Bank, so they have less to lend. Money supply falls. ✘
• C. Increases the bank rate. Borrowing becomes costlier, so loans fall. Money supply falls. ✘
• D. Sells securities to the public. The public pays the Central Bank, so money is withdrawn from circulation. Money supply falls. ✘

Step 4: Answer The correct option is A.

Tip: Remember "Buy = Boost, Sell = Shrink." When the Central Bank buys securities, it puts money into the economy. When it sells, it takes money out. For reserve requirements and the bank rate, higher means tighter (less money), and lower means looser (more money).