Option 1 -> When RBI sells government securities, buyers pay money which gets absorbed by RBI, reducing money in circulation.
Option 2 -> When RBI purchases securities, it injects money into the economy, increasing (not decreasing) money supply.
Option 3 -> Selling securities absorbs money from the market, causing a decrease (not increase) in money supply.
Option 4 -> Purchasing securities injects liquidity, increasing (not maintaining) money supply.
Hence, Option 1: sells; decrease -> When the RBI sells government securities through open market operations, commercial banks and financial institutions purchase these securities by paying money to the RBI. This transaction removes money from circulation in the economy, thereby decreasing the money supply. This is a contractionary monetary policy tool used to control inflation and reduce excess liquidity in the market. -> correct