An open-market operation refers to

Question

Quizplus · Accepted Answer

An open-market operation is a monetary policy tool used by the central bank in which it buys or sells government securities in the open market, with the aim of changing the money supply. When the central bank buys government securities, it injects money into the economy, thereby increasing the money supply. Conversely, when it sells government securities, it withdraws money from the economy, thereby decreasing the money supply. This process involves the exchange of money for interest-bearing debt by the monetary authority, and hence, option C is the correct answer.

Options A and B, changing the money supply by changing taxes or government spending, respectively, pertain to fiscal policy, not open-market operations. Option D, exchanging domestic money for foreign money, is known as foreign exchange intervention, which is a different monetary policy tool used by the central bank to influence the exchange rate.

An Open-Market Operation Refers to