ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -monetary policy By buying or selling government securities (usually bonds), the Fed-or a central bank-affects the money supply and interest rates. If, for example, the Fed buys government securities, it pays with a check drawn on itself. This action creates money in the form of additional deposits from the sale of…

Detailed explanation-2: -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-3: -Central banks affect the quantity of money in circulation by buying or selling government securities through the process known as open market operations (OMO). When a central bank is looking to increase the quantity of money in circulation, it purchases government securities from commercial banks and institutions.

Detailed explanation-4: -Quantitative easing is a form of monetary policy in which a central bank, like the U.S. Federal Reserve, purchases securities through open market operations to increase the supply of money and encourage bank lending and investment.