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

Question

Quizplus · Accepted Answer

Open market operations affect the money supply differently depending on whether the transaction is made with the banking system or the public. Transactions with the banking system directly alter banks' reserves, thus affecting their ability to create loans and, consequently, the money supply. Transactions with the public can change the composition of assets held by the public (between money and securities), which can indirectly influence the money supply through changes in spending and saving behavior.

The Effect of an Open Market Operation on the Money