Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
By increasing the money supply, leading to lower interest rates
B
By decreasing the money supply, leading to higher interest rates
C
By directly funding government projects
D
By regulating foreign exchange rates
Understanding the Answer
Let's break down why this is correct
Answer
Open market operations are actions taken by a country's central bank to buy or sell government securities in the market. When the central bank buys these securities, it puts more money into the economy, making it easier for banks to lend money. This increase in lending can help businesses invest in new projects and hire more workers, which boosts economic growth. For example, if a central bank buys bonds worth a million dollars, banks have more cash to lend, allowing a small business to take a loan to expand its operations. Conversely, if the central bank sells securities, it takes money out of the economy, which can slow down growth by making loans harder to get.
Detailed Explanation
When the central bank buys or sells government bonds, it changes the amount of money in the economy. Other options are incorrect because Some might think that reducing money supply leads to growth; It's a common mistake to think the central bank directly funds projects.
Key Concepts
Economic growth
Topic
Open Market Operations
Difficulty
easy level question
Cognitive Level
understand
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