Ace the AFP Exam 2025 – Boost Your Financial Wizardry!

Open market operations involve the buying and selling of government securities by a central bank to influence the money supply and interest rates in the economy. Increased inflation can result from open market operations when the central bank purchases securities, which injects liquidity into the economy. This additional money can lead to increased spending and higher demand for goods and services, creating upward pressure on prices.

When the central bank buys assets, it signals more money is available, which can stimulate economic activity. However, if this situation escalates, demand can outstrip supply, leading to inflation. Therefore, while open market operations are a tool for managing economic stability, they can also inadvertently lead to increased inflation if not managed carefully, especially in an economy operating near its full capacity.

This understanding highlights why increased inflation is a probable risk associated with open market operations. The other options, while they may relate to broader economic conditions, do not directly tie into the mechanics and immediate impacts of open market operations as closely as inflation does.