Question

RBI's open market operation transactions are carried out with a view to regulate ________.

• A. liquidity in the economy
• B. prices of essential commodities
• C. inflation
• D. all of the above

Answer 1

Answer: (D)

all of the above

RBI's open market operation transactions are carried out with a view to regulate liquidity in the economy, prices of essential commodities and inflation. Open market operations refer to sale and purchase of securities in the open market. During inflation, securities are sold to reduce the liquidity of cash from the economy. As a result, the money supply gets reduced and the inflation also gets checked. Since, the infllation is corrected, prices of essential commodities also starts to fall.