What will happen when the Reserve Bank of India sells securities in the market ?
Answer & explanation
Correct answer: option 4
The correct answer is Option 4: decrease in money supply
When the Reserve Bank of India (RBI) sells securities in the market, it is engaging in an open market operation aimed at controlling the money supply. Selling securities to the public or financial institutions leads to a reduction in the money supply because buyers pay for these securities with their bank reserves. As a result, the banks have less money to lend.