Explanation:

When the Central Bank buys securities, it has an impact on the bank reserves. The correct answer is option 'B' - it expands the bank reserves.

Impact of Central Bank buying securities on bank reserves:

When the Central Bank buys securities from the market, it does so by injecting funds into the banking system. This injection of funds increases the bank reserves, leading to an expansion of the reserves.

Reasons for the expansion of bank reserves:

There are a few reasons why the purchase of securities by the Central Bank expands the bank reserves:

1. Open Market Operations (OMOs): The Central Bank conducts open market operations, which involve the buying and selling of government securities in the open market. When the Central Bank buys securities, it pays for them by crediting the accounts of the sellers, who are typically commercial banks. This increases the reserves of the banks, expanding the overall bank reserves.

2. Liquidity Injection: By buying securities, the Central Bank injects liquidity into the banking system. This liquidity increases the reserves available to banks, allowing them to meet their liquidity requirements and provide loans to customers.

3. Reserve Requirement: Commercial banks are required to maintain a certain percentage of their deposits as reserves with the Central Bank. When the Central Bank buys securities, it increases the reserves of commercial banks, helping them meet their reserve requirements.

4. Monetary Policy: The purchase of securities by the Central Bank is a tool used to implement monetary policy. By increasing bank reserves, the Central Bank aims to stimulate economic activity and encourage lending and investment.

Conclusion:

In conclusion, when the Central Bank buys securities, it expands the bank reserves. This is done through open market operations, injecting liquidity into the banking system, helping banks meet their reserve requirements, and implementing monetary policy. The expansion of bank reserves plays a crucial role in influencing the overall liquidity and credit conditions in the economy.