when central bank buys securities,bank reserves:

  1. has no impact on reserves
  2. exchange
  3. contracts
  4. unhanged
gaurav5109 Default Asked on 6th June 2015 in Economics.
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1 Answer(s)

Option 2 is the right answer.

Through open market operations, a central bank influences the money supply in an economy. Each time it buys securities (such as a government bond or treasury bill), it in effect creates money. The central bank exchanges money for the security, increasing the money supply while lowering the supply of the specific security. Conversely, selling of securities by the central bank reduces the money supply.

Manish Listener Answered on 7th June 2015.
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