ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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changing the reserve requirement rate
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open market operations (buy/sell bonds)
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changing the discount rate
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None of the above
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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: -Traditionally, the Fed’s most frequently used monetary policy tool was open market operations.
Detailed explanation-3: -The Federal Reserve, America’s central bank, is responsible for conducting monetary policy and controlling the money supply. The primary tools that the Fed uses are interest rate setting and open market operations (OMO).
Detailed explanation-4: -Open market operations (OMOs)–the purchase and sale of securities in the open market by a central bank–are a key tool used by the Federal Reserve in the implementation of monetary policy.
Detailed explanation-5: -The most commonly used tool of monetary policy in the U.S. is open market operations. Open market operations take place when the central bank sells or buys U.S. Treasury bonds in order to influence the quantity of bank reserves and the level of interest rates.