ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Open market operations work by selling and buying government securities by the central bank of a nation. To increase the money supply, the central bank buys back securities, while to reduce the money supply it sells securities to the commercial banks.

Detailed explanation-2: -Influencing interest rates, printing money, and setting bank reserve requirements are all tools central banks use to control the money supply. Other tactics central banks use include open market operations and quantitative easing, which involve selling or buying up government bonds and securities.

Detailed explanation-3: -Central banks conduct monetary policy by adjusting the supply of money, usually through buying or selling securities in the open market. Open market operations affect short-term interest rates, which in turn influence longer-term rates and economic activity.

Detailed explanation-4: -By buying or selling bonds, bills, and other financial instruments in the open market, a central bank can expand or contract the amount of reserves in the banking system and can ultimately influence the country’s money supply. When the central bank sells such instruments it absorbs money from the system.

Detailed explanation-5: -Key Takeaways. Quantitative easing is a form of monetary policy used by central banks to increase the domestic money supply and spur economic activity. In QE, the central bank purchases government bonds and other financial instruments, such as mortgage-backed securities (MBS).