Question

Define or Explain the following concepts.
Open Market Operation.

Answer 1

Open market operation (OMO) is a monetary policy by the central bank in which the bank deals in the sale and purchase of securities in the open market to control the supply of money in the economy. By selling the securities, the central bank soaks liquidity from the economy which controls the inflation in the economy by decreasing the purchasing power of the people and by buying the securities, the central bank releases liquidity which controls deflation in the economy by increasing the purchasing power of the people.