Question

An open market sale of securities by the central bank to banks usually will:

		induce the banks to make more loans since their revenue will decrease if they do nothing.
		increase the banks' willingness and ability to make loans.
		increase the amount of deposits in the banking system.
		diminish the inclination of banks to make loans.

Answer 1

The answer would be the last option or Option 4

An open market sale of securities by Central banks to banks would lead to Diminish the inclination of banks to make loans.

Central Bank will sell securites to banks and this would lead to low reserves of the bank as banks would use their reserves to purchase the securities being sold by Central Bank. This also will lead to lower money supply in the economy and low investments. People will not look forward to take loan as cost of obtaining loans will become high and thus banks rate of giving loans will fall.

Thus it can be concluded that when Central Banks conduct Open Market Operations in the form of Open Market Sale of Securities to banks it would Diminish the inclination of banks to make loans.