Open market operations occur when the Fed:
A) changes the discount rate on lending to banks.
B) changes the rate of interest paid on reserves.
C) buys and sells government bonds.
D) sets up the Term Auction Facility.

Question

Quizplus · Accepted Answer

Open market operations refer to the buying and selling of government bonds by the Federal Reserve. When the Fed buys bonds, it injects money into the economy, which can stimulate borrowing and spending. When the Fed sells bonds, it pulls money out of the economy, which can slow down borrowing and spending. Therefore, the correct answer is option C.

Open Market Operations Occur When the Fed