Open market operations change:
A)the size of the money multiplier, but not bank reserves
B)bank reserves, but not the size of the money multiplier
C)neither bank reserves nor the size of the money multiplier
D)both bank reserves and the size of the money multiplier
E)the target overnight rate but not the interest rate on bonds

Question

Quizplus · Accepted Answer

Open market operations primarily involve the buying and selling of government securities by a central bank to control the money supply. When the central bank buys securities, it increases bank reserves by paying for these securities, which banks can then use to make more loans, effectively increasing the money supply. Conversely, selling securities decreases bank reserves as banks pay for these securities, reducing the money supply. The money multiplier is a separate concept that describes how an initial deposit can lead to a greater increase in the total money supply. It is influenced by the reserve ratio and other factors, not directly by open market operations.

Open Market Operations Change