When the State Bank of Pakistan sells government securities in the open market, the immediate effect is generally to:
Correct answer: B. Reduce liquidity in the banking system
- A. Increase commercial bank reserves
- B. Reduce liquidity in the banking system
- C. Increase exports through cheaper credit
- D. Raise government tax collections
Explanation
Open-market sales transfer funds from buyers to the central bank and reduce commercial bank reserves. This normally contracts liquidity and places upward pressure on market interest rates.
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About Economy of Pakistan
Pakistan's economy is examined through agriculture, industry, services, trade, remittances, employment, population, poverty and regional development. The topic also covers GDP and national income, inflation, fiscal and monetary policy, taxation, public debt, the balance of payments, energy constraints and structural challenges, including the role of the State Bank and development planning.
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