📚 Learning Guide
Open Market Operations
medium

Which of the following accurately describe the effects of open market operations conducted by a Central Bank? Select all that apply.

Master this concept with our detailed explanation and step-by-step learning approach

Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

Selling government bonds decreases the money supply.

B

Buying government bonds increases interest rates.

C

Selling government bonds can lead to higher interest rates.

D

Buying government bonds increases the reserves in the banking system.

E

Open market operations can influence inflation rates.

Understanding the Answer

Let's break down why this is correct

Answer

Open market operations are actions taken by a Central Bank to control the money supply in an economy by buying or selling government securities. When the Central Bank buys securities, it injects money into the economy, which can lower interest rates and encourage borrowing and spending by businesses and consumers. For example, if a Central Bank buys bonds from banks, those banks have more money to lend, leading to increased investment and economic growth. Conversely, when the Central Bank sells securities, it removes money from the economy, which can raise interest rates and slow down spending. Therefore, the effects of these operations can significantly influence economic activity and inflation.

Detailed Explanation

All the statements about open market operations are incorrect. Other options are incorrect because Some might think selling bonds reduces money; It's a common mistake to think buying bonds raises interest rates.

Key Concepts

Open Market Operations
Monetary Policy
Interest Rates
Topic

Open Market Operations

Difficulty

medium level question

Cognitive Level

understand

Ready to Master More Topics?

Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.