ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Open market operations work by selling and buying government securities by the central bank of a nation. To increase the money supply, the central bank buys back securities, while to reduce the money supply it sells securities to the commercial banks.

Detailed explanation-2: -Open market operations (“OMOs”) are the central bank’s primary tool of monetary policy. If the central bank wants interest rates to be lower, it buys bonds. Buying bonds injects money into the money market, increasing the money supply.

Detailed explanation-3: -The Fed purchased longer-term securities on the open market, including U.S. Treasuries and mortgage-backed bonds. These investments in securities (typically in the fixed income market) add liquidity and reduce borrowing costs to encourage economic activity through more lending and investment.

Detailed explanation-4: -In open market operations, the Federal Reserve buys or sells securities on the open market to raise or lower interest rates. They are one of the tools that the Fed has at its disposal to boost or slow down the country’s economic activity.

Detailed explanation-5: -When the Federal Reserve buys bonds, bond prices go up, which in turn reduces interest rates. Open market purchases increase the money supply, which makes money less valuable and reduces the interest rate in the money market. OMOs involve the purchase or sale of securities, typically government bonds.