Macro Economics Flash Cards

Question	Answer
Open Market Operations (OMO)	OMO refers to the deliberation buying and selling of government securities by the Central Bank. - By doing so, the Central Bank can increase or decrease the cash reserves of the banks. -During inflation, the Central Bank sells the government securities to the commercial banks. This contracts the credit creation power of the commercial banks and inflation is controlled. - During deflation, the Central Bank purchases government securities from commercial and public banks. This increases the credit creation powers of the commercial banks and deflation is controlled.
Central Bank	A bank which is at the apex of the banking structure. The main aim of the Central Ban is not to earn profit, but to promote general public welfare.
Commercial Bank	A bank which functions as per the rules and regulations set by the Central Bank is called a commercial bank. The main aim of the Commercial Bank is to earn profit.
Marginal Propensity to Consume	-Marginal Propensity to Consume is the ration of change in aggregate consumption to the corresponding change in the aggregate income. -The Marginal Propensity to Consume is calculated as: MPC= Delta C/Delta Y; where, C= Change in aggregate consumption. Y= Change in aggregate income -Generally, the MPC falls with an rise in income.

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