Q. 155.0( 1 Vote )

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Answer :

(c) Purchasing government securities

The purchase and sales of government securities come under open market operations. It influences the ability of the commercial banks to create credit. The selling of government securities decreases the reserves of the banks and reduces their ability to create further credit. But the purchasing of the securities by the banks increases the reserves with the commercial banks and increases the liquidity in the economy. This is done during deflation to increase the credit in the economy.

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