ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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. When the central bank wants interest rates to be higher, it sells off bonds, pulling money out of the money market and decreasing the money supply.

Detailed explanation-2: -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-3: -8 Buying these securities adds new money to the economy, and also serves to lower interest rates by bidding up fixed-income securities. At the same time, it greatly expands the central bank’s balance sheet.

Detailed explanation-4: -Central banks cut interest rates when the economy slows down in order to reinvigorate economic activity and growth. Rates go up when the economy is hot. The goal of cutting rates is to reduce the cost of borrowing so that people and companies are more willing to invest and spend.

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.