CUET Preparation Today
When the Reserve Bank of India buys government bonds from the market, how does that affect money supply in the economy? |
Increases Money Supply Decreases Money Supply Money Supply Remain Constant Increases the assets of government |
Increases Money Supply |
The correct answer is Option (1) → Increases Money Supply When the Reserve Bank of India (RBI) buys government bonds from the market, it pays money to the sellers (usually commercial banks or financial institutions). This injects liquidity into the banking system, thereby increasing the money supply in the economy. Such an action is part of the RBI’s Open Market Operations (OMO) and is used to stimulate economic activity when liquidity is low. |
