If the Fed wants to increase the money supply through an open market operation, it willGroup of answer choicespurchase government securitiessell government securitiesfirst purchase then sell government securitieslend more reserves to commercial banks
Question
If the Fed wants to increase the money supply through an open market operation, it willGroup of answer choicespurchase government securitiessell government securitiesfirst purchase then sell government securitieslend more reserves to commercial banks
Solution
If the Federal Reserve (Fed) wants to increase the money supply through an open market operation, it will purchase government securities.
Here's the step-by-step explanation:
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The Federal Reserve (Fed) conducts open market operations by buying and selling government securities such as Treasury bonds.
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When the Fed wants to increase the money supply, it purchases government securities.
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The purchase of these securities is made from banks or private entities. The Fed pays for these securities by adding the same amount to the reserves of the bank.
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This increases the amount of money that banks have available to lend to businesses and individuals, which effectively increases the overall money supply in the economy.
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The increased money supply can stimulate economic activity as more money is available for spending and investment.
So, the correct answer is "purchase government securities".
Similar Questions
To increase the money supply, the central bank can _____________.a.Cut taxesb.Purchase bonds in the open-marketc.Encourage people to held more cash (currency in circulation)d.Increase the government spending
A central bank would like to increase the money supply in the country. It achieves this by buying treasury securities from investors who had purchased them earlier. Investors who sell their securities now have more money on hand to invest in businesses.This action best illustrates the central bank's use of which tool of monetary policy?A.Interest on reservesB.Reserve requirementsC.Discount rateD.Open market operations
If the Federal Reserve System buys government securities,Multiple Choicethe money supply will not change.interest rates on the securities will not change.interest rates on the securities will fall.the equilibrium price of the securities purchased will fall.
Which tool of monetary policy allows the Federal Reserve to decrease the money supply?A.Purchasing treasury securities on the open marketB.Decreasing the discount rate on short-term loansC.Increasing the reserve requirement on banksD.Lowering interest on reserves paid to banks
In an open-market operation, the Fed buys $20 million of government bonds from individual investors.If the required reserve ratio is 7 percent, the largest possible increase in the money supply that could result is $_________million.Put your answer to the second decimal place. For example, if the answer is 12.3456, put 12.35.
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