The following question has two blanks, each blank indicating that something has been omitted. Choose the set of words for each blank that best fits in the context of the sentence. The central bank may choose to __________ liquidity in the market to prevent excessive volatility while ensuring adequate credit __________ to productive sectors.

Solution

Inject liquidity means putting money into the financial system. This is exactly what a central bank does when it wants to stabilise markets. Credit flow refers to loans and money moving to businesses and industries. It is a very common phrase in banking and economic articles. Withdraw, access  Withdraw liquidity means taking money out, which can increase volatility, not reduce it. Circulate, movement  These words sound okay but are not used in official banking language. Supply, rotation  Rotation does not fit with credit at all. Expand, transfer  Transfer talks about moving money between accounts, not lending to sectors.