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Explain How Open Market Operations Are Helpful in Controlling Credit Creation. - Economics

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Explain how open market operations are helpful in controlling credit creation.

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Solution

Open market operations refer to the sale and purchase of government securities and bonds by the Central Bank. While controlling inflation, the Central Bank sells government securities to the public through the banks. This results in the transfer of a part of bank deposits to the Central Bank account and reduces credit creation capacity of commercial banks.

Concept: Central Bank Function - Controller of Credit
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