Explain how will the bank stimulate the economy through the use of LGS (Liquid assets and government securities) ratio
The bank can stimulate the economy through the use of the LGS ratio by adjusting the amount of liquid assets and government securities it holds relative to its total deposits.
If the bank lowers its LGS ratio, it will have more funds available to lend to businesses and consumers. This can lead to increased investment and spending in the economy, which can help stimulate economic growth.
Conversely, if the bank raises its LGS ratio, it may limit its ability to lend out funds, which can have a stabilizing effect on the economy during times of high inflation or economic overheating.
By carefully managing its LGS ratio, the bank can play a crucial role in influencing the overall level of economic activity in the economy.