The U.S.Fed can most effectively achieve an established federal funds rate target by
A)leaking information about its future intentions to financial markets
B) maintaining a stable monetary growth rate
C) undertaking open market operations to influence bank reserves
D)adjusting monetary growth to maintain a stable inflation rate
E)selling Treasury bills whenever short-term interest rates increase

Question

Quizplus · Accepted Answer

Open market operations involve the buying or selling of government securities by the Fed in order to change the amount of money in the banking system. By buying securities, the Fed increases bank reserves and encourages lending, which leads to lower interest rates. By selling securities, the Fed decreases bank reserves and discourages lending, which leads to higher interest rates. By using open market operations, the Fed can directly influence short-term interest rates and achieve its federal funds rate target.

The USFed Can Most Effectively Achieve an Established Federal Funds Rate