Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
To regulate the stock market
B
To control inflation and stabilize the currency
C
To increase government revenue
D
To set interest rates for private banks
Understanding the Answer
Let's break down why this is correct
Answer
The primary purpose of open market operations, which are conducted by a central bank, is to control the money supply and influence interest rates in the economy. When a central bank wants to increase the money supply, it buys government securities from banks, giving them more money to lend. This can lower interest rates, making it cheaper for people and businesses to borrow money. Conversely, if the central bank wants to reduce the money supply, it sells securities, taking money out of circulation and potentially raising interest rates. For example, if a central bank buys bonds, it puts cash into the banking system, encouraging banks to lend more, which can help stimulate economic growth.
Detailed Explanation
The main goal of open market operations is to control inflation and stabilize the currency. Other options are incorrect because Some might think open market operations are about the stock market; People may believe these operations increase government revenue.
Key Concepts
Central bank
Topic
Open Market Operations
Difficulty
easy level question
Cognitive Level
understand
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