Question

Which of the following best describes the use of open market operations to influence the money supply?

A. The government spends more money and charges lower taxes?

B. Private banks raise and lower interest rates charged to customers?

C. The Fed buys and sells treasury bonds in the bond market

D. Currency speculators make profits by exchanging foreign money

Answer 1

The Fed buys and sells Treasury bonds in the bond market.

Explanation: xepa verified

Answer 2

The correct answer is option C "The Fed buys and sells treasury bonds in the bond market". A major tool available to Federal Reserve is the open market operations (OMO), which operates by buying or selling Treasury bonds in the open market. By doing this, the Fed can directly manipulate interests rate and affects the money supply to bring balance to the market.