Federal Reserve's open market operations
Not what you're looking for?
The Federal Reserve has traditionally conducted open market operations through the purchase and sale of government bonds. In principle, could the Federal Reserve conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange? Do you see any possible drawbacks to such a policy?
Suppose the Federal Reserve purchased gold or foreign currency. How would this purchase affect the domestic money supply? [Hint: about open market purchases of government bonds.]
Purchase this Solution
Solution Summary
The Federal Reserve's open market operations are examined.
Solution Preview
The Fed's open market operations affect the supply of money through the reserves of depository institutions. And the bank would in turn credit the security dealer's account for that amount. While the dealer's bank must keep a certain percentage of these new funds in reserve, it can lend and invest the remainder. As these funds are spent and respent, the stock of money and credit will eventually increase by much more than the original amount.
<br>The key point here is that government bonds are risk free: they are backed by US government and are usually treated as ...
Purchase this Solution
Free BrainMass Quizzes
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.