When the Fed wants to undertake open market operations, it
A) buys or sells government securities.
B) can require all commercial banks to buy from or sell to it.
C) buys government securities from or sells Government securities to the federal government.
D) can require all member banks to buy from or sell to it.

Question

Quizplus · Accepted Answer

When the Fed wants to undertake open market operations, it buys or sells government securities. This allows it to increase or decrease the money supply in the economy. The Fed buys government securities from banks, which increases the amount of money banks have available to lend, which in turn increases the money supply. Conversely, when the Fed sells government securities to banks, it decreases the amount of money available to banks to lend, which decreases the money supply.

When the Fed Wants to Undertake Open Market Operations, It