“It is always claimed by the commercial banks in the economy that their “Net-Worth” fall sharply when Central bank adopt the contraction monetary policy in the periods of high inflation in the economy. What do you think is this right or wrong? Give comments in its favor or against.”
In my point of view this statement is right.
Contractionary monetary policy is monetary policy that seeks to reduce the size of the money supply.
Net worth is the total assets minus total outside liabilities of bank.
when the central bank is "tightening", it slows the process of private bank issue by selling securities on the open market and pulling money (that could be loaned) out of the private banking sector. By increasing the supply of bonds, this lowers their prices and raises interest rates at the same time that the money supply is reduced.
so when Central bank adopt the contraction monetary policy in the periods of high inflation in the economy, the prices are lowers and interest rates are increase Due to it net worth fall or decrease.
Contractionary monetary policy is monetary policy that seeks to reduce the size of the money supply.
Net worth is the total assets minus total outside liabilities of bank.
when the central bank is "tightening", it slows the process of private bank issue by selling securities on the open market and pulling money (that could be loaned) out of the private banking sector. By increasing the supply of bonds, this lowers their prices and raises interest rates at the same time that the money supply is reduced.
so when Central bank adopt the contraction monetary policy in the periods of high inflation in the economy, the prices are lowers and interest rates are increase Due to it net worth fall or decrease.
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