This function of Central Bank involves buying and selling of government securities from or to the public and commercial banks.

Selective Credit Controls

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Legal Reserve Requirements

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Open Market operations

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None of these

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Solution

The correct option is C Open Market operations
Open market operations refers to buying and selling of Government securities and treasury bills by the central bank with a view to regulate the supply of money in the economy. If central bank wants to increase the money supply it will purchase govt securities and if it want to decrease the money supply it will sell the securities.

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Buying and selling of government securities by the central bank from or to the public and banks are known as

Which of the following terms of the central bank is due to its functions of buying and selling government securities on behalf of the government?

If the commercial banks buy government securities, their capacity to create credit is reduced. Do you agree?

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