ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If the Fed buys bonds in the open market, it increases the money supply in the economy by swapping out bonds in exchange for cash to the general public. Conversely, if the Fed sells bonds, it decreases the money supply by removing cash from the economy in exchange for bonds.

Detailed explanation-2: -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.

Detailed explanation-3: -When the Federal Reserve sells government securities on the open market, what effect does this action have on the nations supply and interest rates? actions by the Federal Reserve System to expand or contract the money supply. The amount of money circulating in the economy would decrease.

Detailed explanation-4: -Which of the following is most likely to occur when the Federal Reserve buys government bonds on the open market? Interest rates will decrease.