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Economics
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When the Federal Reserve conducts open market operations, it:
 
(i) manipulates the rate at which it loans to member banks. Higher rates increase the money supply and lower rates decrease the money supply.
(ii) increases or decreases the required reserve ratio. Increasing the ratio will fuel deposit expansion and an increase in the money supply.
(iii) buys and sells foreign currency. The money supply increases when purchasing occurs and decreases when selling occurs.
(iv) buys or sells government bonds. The money supply increases when buys bonds and decreases when sells bonds.

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Ritu Kharb
Ritu KharbLv5
31 Mar 2020
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Related questions

1.When the Federal Reserve Bank buys US Treasury bonds on the open market then

A-

then the money supply decreases, interest rates decline, gdp increases, and employment decreases
B-

the money supply increases, interest rates increase, gdp decreases, and employment increases
C-

the money supply decreases, interest rates increase, gdp decreases, and employment decreases
D-

the money supply increases, interest rates decline, gdp increases, and employment increases

2. Countries can increase their welfare by engaging in specialization in production and international trade based on their:

a-relative levels of GDP

b-absolute advantage

c-comparative advantage

d-relative exchange rates

3. Short-run marginal cost of a good generally:

a-

intersects the maximum points of both the average variable cost and the average total cost curves
b-

falls for a time, but then begins to rise when the point of diminishing returns is reached.
c-

is defined as the difference between total cost and total variable cost.
d-

are based on total fixed costs.

You are Chair of the Federal Reserve Board. In your meeting with the Federal Open Market Committee, the committee unanimously votes to increase the money supply using open market operations (OMOs). During the press conference after the meeting a reporter asks you to explain what OMOs are and how you will use them to increase the money supply. You reply:

A. OMOs alter reserve requirement up or down. The money supply will increase when we use OMOs to decrease the reserve requirement.

B. Open market operations refer to manipulating the rate at which the FED loans to member banks. Increasing the money supply occurs when the FED lowers this rate, which increases the amount of excess reserves in the banking system.

C. OMOs are the selling and buying of government securities. The money supply increases when selling occurs and contracts when buying occurs. OMOs work by changing the amount of excess reserves available in the banking system.

D. OMOs are the selling and buying of government securities. The money supply increases when purchasing occurs and contracts when selling occurs. OMOs work by changing the amount of excess reserves available in the banking system.

1. In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold (less, more) currency or if banks choose to hold (less, more) excess reserves.

2. If the Fed makes an open-market purchase of government bonds, it will (decrease, increase) the money supply. Whereas if there is an increase in the discount rate on Fed lending, it will (decrease, increase) the money supply.

3. Chloe takes $100 of currency from her wallet and deposits it into her checking account. If the bank adds the entire $100 to reserves, the money supply(decreases, doesn't change, increases), but if the bank lends out some of the $100, the money supply (decreases, doesn't change, increases).

4. If the reserve ratio is 0.25 and the central bank increases the quantity of reserves in the banking system by $120, the money supply increases by how much?

 

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