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Question
A sell government bonds B reduce interest rates D encourage banks to lend
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Solution
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Open market operation(OMO) is a monetary policy by the central bank in which the bank deals in thesale and purchase of securities of the government in the open market to control the supply ofmoney in the economy. By selling the government's securities and bonds, the central bank soaksliquidity from the economy which controls the inflation in the economy by decreasing the purchasing power of the people owing to reduction in the money supply. Therefore, for reducing the supply of money, the government sells securities and bonds in the open market.
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