In 2023, the Republic of Eldoria faced a severe economic slowdown, prompting the Bank of Eldoria (the central bank) to take decisive action to support the financial sector. To boost liquidity and encourage economic activity, the Bank of Eldoria implemented several expansionary monetary policy measures.
Firstly, the central bank initiated an aggressive asset purchase programme, buying up substantial quantities of long-term government securities from financial markets. Secondly, it reduced its main refinancing rate to an all-time low of 0.25%, lowering the cost of borrowing for commercial institutions.
In response to these interventions, commercial banks across Eldoria significantly eased their lending criteria. These commercial institutions actively generated new deposit money by extending credit/overdraft facilities and issuing mortgages and business loans to private firms and households, further expanding the nation's broad money supply. Consequently, overall economic output began to recover by the final quarter of 2023.
Using information from the stimulus material, identify two methods by which the money supply can be increased.
