When engaging in open market operations to stimulate the economy the Federal Reserve will

Question

Quizplus · Accepted Answer

When the Federal Reserve engages in open market operations to stimulate the economy, it typically buys short term U.S. Treasuries. This increases the money supply, as the Federal Reserve pays for the Treasuries with new money. The increase in the money supply can lead to lower interest rates and increased borrowing and spending by households and businesses, thereby stimulating economic activity. Selling short term U.S. Treasuries, as in option B, would have the opposite effect, reducing the money supply and potentially cooling the economy. Gold is not typically used in open market operations by the Federal Reserve, so options C and D are not correct.

When Engaging in Open Market Operations to Stimulate the Economy