Answer to Question #259521 in Macroeconomics for Mercy

Question

To counteract a recession, the SARB could:

Group of answer choices

Sell government securities on the open market and raise the repo rate.

Buy government securities on the open market and lower the required reserve ratio.

Buy government securities on the open market and raise the required reserve ratio.

Raise the required reserve ratio and lower the repo rate.

Answer 1

Monetary policy: - it is a tool of government or central bank of a country in which they control money supply to achieve desirable economic goals.

1. Required reserve rate: - reserve rate is the percentage of total reserves that commercial banks have to keep as reserves. The decrease in the required reserve rate increase the funds that commercial banks can lend and result in the increase of money supply in the market while an increase in the required reserve rate decrease the funds commercial banks have for lending and result in the decrease of money supply in the economy. 
2. Open market operations: - it is a monetary policy tool to control money supply in the economy by selling or purchasing securities or bonds in the market. When the central bank purchases bonds from the market then it increases the money supply in the market which means the money in the people's hand increase on the other hand when the government sell bonds in the market then it decreases the money supply in the economy.

So, to counteract a recession the SARB could buy government securities on the open market and lower the required reserve ratio which would increase the money supply in the economy and cure the recession by increasing aggregate demand in the economy.

Therefore, the option "Buy government securities on the open market and lower the required reserve ratio." is correct.