Asked by Imani Devaughn on Jun 02, 2024
Verified
When the Fed buys securities
A) it is conducting open market operations.
B) it wants to increase the money supply.
C) it offers a high price on those securities which drives down interest rates.
D) All of the choices are true when the Fed buys securities.
Open Market Operations
Central bank activities involving buying and selling government securities in the marketplace to influence the money supply and interest rates.
Money Supply
The all-inclusive measure of monetary resources present in an economy at a specific juncture.
Interest Rates
The cost of borrowing money or the return for investing, typically expressed as a percentage of the principal, varying over time based on economic conditions.
- Recognize the relationship between the Federal Reserve's monetary policy decisions and their impact on the economic landscape.
- Gain insight into the association among open market operations, reserve requirements, and the circulation of money.
Verified Answer
ZK
Zybrea KnightJun 07, 2024
Final Answer :
D
Explanation :
When the Fed buys securities, it is conducting open market operations which it does with the intention of increasing the money supply. By buying securities, the Fed injects cash into the economy which is used to increase the reserves in banks. This results in banks having more money to lend, and as a result, interest rates are driven down. Therefore, all of the choices are true when the Fed buys securities.
Learning Objectives
- Recognize the relationship between the Federal Reserve's monetary policy decisions and their impact on the economic landscape.
- Gain insight into the association among open market operations, reserve requirements, and the circulation of money.