Consider the following statements regarding Open Market Operations. 1. Open Market Operations refers to buying and selling of bonds issued by the Government in the open market. 2. Selling of a bond by RBI leads to increases in the total amount of reserves in the economy and thus increases the money supply. Which of the above statements is/are incorrect?

Statement 1 is correct: Open Market Operations (OMOs) are a tool of monetary policy used by central banks. They involve the buying and selling of government securities (like treasury bills, bonds) in the open market (secondary market) to influence the money supply and credit conditions in the economy. Statement 2 is incorrect: When the RBI sells a bond in the open market, it withdraws liquidity from the banking system. Commercial banks or individuals buy these bonds by giving money to the RBI. This reduces the reserves held by commercial banks and decreases the money supply in the economy. Conversely, when the RBI buys a bond, it injects money into the system, increasing bank reserves and expanding the money supply. The statement incorrectly describes the effect of selling bonds. The question asks for the incorrect statements. Since statement 1 is correct and statement 2 is incorrect, only statement 2 is incorrect.