When government wants to increase the money supply it:

Correct option is A

The correct answer is (A) Purchases government bonds.

Here's why:

• Open Market Operations (OMO): This is a key tool used by central banks (like the Federal Reserve in the US or the Reserve Bank of India) to influence the money supply.
• Buying bonds: When the government purchases government bonds from the public or banks, it injects money into the economy. This increases the money supply.
• Selling bonds: Conversely, selling government bonds takes money out of the economy, reducing the money supply.

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR):

• CRR: This is the percentage of deposits that banks must hold as reserves with the central bank. Increasing the CRR reduces the amount of money banks can lend out, thus decreasing the money supply.
• SLR: This is the percentage of deposits that banks must maintain in liquid assets (like gold or government securities). Increasing the SLR also restricts the amount of money available for lending, decreasing the money supply.