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Money and Banking — Economics STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceEconomicsMoney and Banking4 Marks
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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