Open market operations are powerful because of the dollar-for-dollar change in reserves that comes from buying or selling government securities on the open market.

Question

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Open market operations involve the buying or selling of government securities on the open market. When the central bank buys securities, it provides banks with newly created reserves that can then be used to make loans, increasing the money supply. Conversely, when the central bank sells securities, it drains reserves from the banking system, decreasing the money supply. This change in reserves is equal to the amount of securities bought or sold, so open market operations can have a powerful impact on the money supply.

Open Market Operations Are Powerful Because of the Dollar-For-Dollar Change