Multiple choice

When the Central Bank sells securities,

  1. the purchasing power in the econonmy gets reduced

  2. the flow of credit is reduced

  3. the cash resources at the disposal of Commercial Banks get diminished

  4. All of the above

  5. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Selling and purchasing securities is the part of open market operations. By selling the securities in an economy, people will have less cash in hand,  reduced cash means reduced purchasing power, reduced purchasing power will result into  reduced credit flow in the economy and ultimately cash disposal of the banks will get diminished. 

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