The Fed undertakes defensive open-market operations
A)when it wants to change fiscal policy.
B)because of seasonal effects or to offset a temporary change in money demand.
C)to offset a permanent change in money demand.
D)when it wants to change monetary policy.

Question

Quizplus · Accepted Answer

Defensive open-market operations are undertaken by the Fed to offset a temporary change in money demand, such as due to seasonal effects, unexpected events, or changes in market conditions. This is done to maintain stability in the money market and to ensure that short-term interest rates remain within the target range set by the Fed. It is different from offensive open-market operations, which are used to implement monetary policy and to achieve larger macroeconomic goals such as controlling inflation or boosting economic growth.

The Fed Undertakes Defensive Open-Market Operations