The effect of an open market operation on the monetary base does not depend on whether the transaction is made with the banking system of the public.

Question

Quizplus · Accepted Answer

The monetary base is the sum of currency in circulation and reserves held by banks at the central bank. An open market operation is a purchase or sale of government securities by the central bank. When the central bank buys securities, it increases the monetary base by increasing reserves held by banks. When the central bank sells securities, it decreases the monetary base by decreasing reserves held by banks. The effect of an open market operation on the monetary base is the same regardless of whether the transaction is made with the banking system or the public.

The Effect of an Open Market Operation on the Monetary