In order to reduce credit in the country, RBI may:
In order to reduce credit in the country, RBI may:
(a) Buy securities in the open market
(b) Sell securities in the open market
(c) Reduce cash reserve ratio
(d) Reduce Repo Rate
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Ans – (b)
Explanation:-
One of the Monetary policies practiced by the RBI is the Open Market operations.
RBI has the right to sell and purchase of government securities to the public.
By practicing it, RBI can control the money supply or credit creation in the economy.
when RBI sells securities in the open market. The public withdraws money from their deposits from commercial banks.
It reduces the reserves of commercial banks.
It adversely affects the bank’s ability to create credit and therefore decreases the money supply in the economy.
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