The Federal Reserve will engage in open market operations when

Question

Quizplus · Accepted Answer

Open market operations are one of the monetary policy tools used by the Federal Reserve to influence the economy. The main objective of these operations is to change the money supply in the economy. The Federal Reserve buys or sells government securities (bonds) in the open market to increase or decrease the reserves in the banking system. When the Federal Reserve buys securities, it injects money into the economy, increasing the supply of money and credit, and lowering interest rates. When it sells securities, it drains money from the economy, decreasing the supply of money and credit, and raising interest rates. Therefore, the correct answer is B, it wants to change the money supply.

The Federal Reserve Will Engage in Open Market Operations When