Explain how open market operations are helpful in controlling cre… - Vidyadip

Question

Explain how open market operations are helpful in controlling credit creation.

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Answer

Open market operations: Refers to selling and buying of government securities by the central bank By selling securities in the open market money flow out of commercial banks and into central bank. This reduces demand deposits with the commercial banks and lowers their capacity to create credit Borrowing from banks becomes less, and money supply is reduced.

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