Open market operations are
A) seldom used by the Federal Reserve because they have such a large impact on bank Reserves.
B) seldom used by the Federal Reserve because they have little impact on bank reserves.
C) used frequently by the Federal Reserve but not as often as changes in the discount rate.
D) the primary method used by the Federal Reserve to alter bank reserves.

Question

Quizplus · Accepted Answer

Open market operations refer to the buying and selling of government securities by the Federal Reserve to influence the level of bank reserves. This is the primary method used by the Federal Reserve to alter bank reserves. Therefore, option D is the correct choice. Option A and B are incorrect because the impact of open market operations on bank reserves is significant, and they are not seldom used by the Federal Reserve. Option C is also incorrect because open market operations are used more frequently than changes in the discount rate.

Open Market Operations Are