Assertion (A): An open market sale of securities by the RBI reduces money supply by more than the value of the securities sold.
Reason (R): The sale cuts banks' reserves, and deposits shrink by a multiple of the fall in reserves.

Both A and R are true, and R is the correct explanation of A.Correct answerYour answerBoth A and R are true, but R is not the correct explanation of A.Correct answerYour answerA is true, but R is false.Correct answerYour answerA is false, but R is true.Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

The money multiplier also works in reverse. R explains A.

Concept: OMO and the multiplier
Typical timeTypical: 100 s
Your timeYours: —

The rule this testsOpen market operations

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Assertion (A): An open market sale of securities by the RBI reduces money supply by more than the value of the securities sold.Reason (R): The sale cuts banks' reserves, and deposits shrink by a multiple of the fall in reserves.

Explanation

Assertion (A): An open market sale of securities by the RBI reduces money supply by more than the value of the securities sold.
Reason (R): The sale cuts banks' reserves, and deposits shrink by a multiple of the fall in reserves.