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Questions
What is meant by open market operations?
Explain the following concept.
Open Market Operation
Explain the following:
Open Market Operation
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Solution
- Open market operations refer to the buying and selling of government securities. These securities can be bought or sold to the public or to the commercial banks in an open market.
- Open market operations are used by the central bank to affect the money supply in the economy.
- The sale of securities by the RBI drains the extra cash from the economy, thereby limiting the money supply, whereas the purchase of securities by the RBI pumps additional money into the economy, thereby stimulating the money supply.
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