Open market operations are defined as
A)a bank borrowing from the Fed.
B)the buying and selling of securities by the Fed.
C)the buying and selling of securities between banks.
D)the amount banks can lend on each deposit.
E)a bank making a loan to the Fed.

Question

Quizplus · Accepted Answer

Open market operations refer to the buying and selling of government securities by the central bank (in this case, the Fed) in order to regulate the money supply and achieve various monetary policy objectives. Choice A is incorrect because a bank borrowing from the Fed is a form of discount window lending, not open market operations. Choice C is incorrect because open market operations involve transactions between the central bank and financial institutions, not between financial institutions themselves. Choice D is incorrect because it refers to the reserve ratio, which is a separate tool for controlling the money supply. Choice E is incorrect because banks do not make loans to the Fed in normal circumstances.

Open Market Operations Are Defined as