Question

How can banks increase the amount of loan funds available for private lending? A Selling government...

How can banks increase the amount of loan funds available for private lending?
A Selling government securities to dealers and federal reserve system
B buying gov. Securities from dealers and the fed reserve system
C by buying stocks, property and other assets to hold on behalf of the banks
D by holding 100% of customers deposits in bank volts
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Answer #1

Open market operation (OMO) is a strong tool of central bank to control the monetary policy of an economy.

OMO is refferd to the buying and selling of government securities. Buying and selling of securities helps the central bank to control the reserve balance of other banks which further helps in control the interest rate, and lead to change in money supply in an economy.

Expansionary monetary policy lead to increase the money supply in an economy. In this case banks buys government securities from dealers and the fed reserve system in order to increase the amount of loan funds availability for private lending, which further leads to increase in money supply.

So, the correct answer is an option (B).

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