Open market operations are the principal mechanism for directly altering the reserves of the banking system.
Open market operations are the most powerful and the most frequently used tool of the Fed.

Question

Quizplus · Accepted Answer

Open market operations involve the buying and selling of government securities by the Fed in order to control the supply of money in the banking system. This is the primary way in which the Fed can directly increase or decrease the reserves of banks. As a result, open market operations are considered the most effective and frequently used tool at the Fed's disposal for influencing the money supply and interest rates.

Open Market Operations Are the Principal Mechanism for Directly Altering