Question

The open market Operations occur when the government:

• A. reduces spending
• B. buys and sells bonds and securities
• C. increases taxation
• D. increases the exchange rate

Answer 1

The correct option is B buys and sells bonds and securities

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