Arrange the following statements in chronological order with respect…

Arrange the following statements in chronological order with respect to open market operation.

(A) Bonds payments increases total reserves in the economy.

(B) RBI buys government bonds from the market.

(D) Higher reserves increase money supply in the economy.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (B), (A), (D), (C)

Open market operations are the buying and selling of government bonds by the RBI in the open market. A purchase raises the money supply and a sale lowers it:

(B) RBI buys government bonds from the market. — The RBI buys a bond and pays for it by cheque.
(A) Bonds payments increases total reserves in the economy. — This cheque increases the total amount of reserves in the economy.
(D) Higher reserves increase money supply in the economy. — With more reserves, banks can give more loans, so the money supply rises.
(C) RBI sell bond if there is excess money supply. — This is the reverse step. If money supply becomes excessive, the RBI sells bonds, which reduces reserves and the money supply.

Note: It seems that there is a mistake in the original NTA question. Statements (B), (A) and (D) describe a purchase of bonds, step by step. Statement (C) describes a sale of bonds, a separate operation that does not follow from them. Only Option (3) keeps (B), (A) and (D) in their order, so the question can still be answered.

NCERT (2026-27): “3.4 Policy Tools to Control Money Supply … Another important tool by which the RBI also influences money supply is Open Market Operations. Open Market Operations refers to buying and selling of bonds issued by the Government in the open market. This purchase and sale is entrusted to the Central bank on behalf of the Government. When RBI buys a Government bond in the open market, it pays for it by giving a cheque. This cheque increases the total amount of reserves in the economy and thus increases the money supply. Selling of a bond by RBI (to private individuals or institutions) leads to reduction in quantity of reserves and hence the money supply.…”