When the RBI buys a government bond in the open market, the money supp…

Question

When the RBI buys a government bond in the open market, the money supply:

Accepted Answer

A. Increases

1. It pays with a cheque that adds to reserves.
2. Money supply increases.
3. Selling a bond reduces it.
_Source: syllabus Introductory Macroeconomics, Chapter 3, Money and Banking._

Answer

Decreases

Answer

Stays same

Answer

Vanishes

When the RBI buys a government bond in the open market, the money supply:

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