Defensive open market transactions
A) are aimed at achieving changes in monetary policy.
B) are used much less frequently than dynamic open market transactions.
C) are used to offset disturbances to the supply or demand for reserves.
D) make it easy to deduce the Fed's intentions for monetary policy.

Question

Quizplus · Accepted Answer

Defensive open market transactions are conducted by the Fed to counteract fluctuations in the demand or supply of reserves in the banking system. They are used to maintain stability in short-term interest rates and keep them within a targeted range. Unlike dynamic open market transactions, defensive operations are less frequently used to bring about changes in monetary policy. The Fed's intentions for monetary policy cannot be easily deduced from defensive operations, as they are undertaken primarily to manage reserve levels rather than to signal policy direction.

Defensive Open Market Transactions