What action would the State Bank of Pakistan take to implement a restrictive monetary policy?

Show Answers

Decrease the required reserve ratio for banks.Purchase government bonds in the open market.Cut down the prevailing interest rates.Sell government bonds through open market operations.Increase the money supply by lowering reserve requirements.

Explanation

To adopt a tight monetary policy, the central bank typically sells government securities to reduce liquidity. However, option B indicates buying government securities, which actually increases money supply and is an expansionary measure. Therefore, the correct action for a restrictive policy would be option D, selling government securities. Since the correct answer key is option B, note that buying securities is an expansionary action, not a tight monetary policy step.