Question

which of the following accurately describes the difference between how open market operations are used in a banking system with limited reserves compared to a banking system with ample reserves? responses in a banking system with limited reserves, open market operations are used to maintain sufficient reserves, whereas in a banking system with ample reserves, open market operations are used to indirectly influence the nominal interest rate by changing the money supply. in a banking system with limited reserves, open market operations are used to maintain sufficient reserves, whereas in a banking system with ample reserves, open market operations are used to indirectly influence the nominal interest rate by changing the money supply. in a banking system with limited reserves, open market operations are used to indirectly influence the nominal interest rate by changing the money supply, whereas in a banking system with ample reserves, open market operations are used to maintain sufficient reserves. in a banking system with limited reserves, open market operations are used to indirectly influence the nominal interest rate by changing the money supply, whereas in a banking system with ample reserves, open market operations are used to maintain sufficient reserves. in a banking system with limited reserves, open market operations are used to directly adjust the nominal interest rate, whereas in a banking system with ample reserves, open market operations are used to indirectly influence the nominal interest rate by changing the money supply. in a banking system with limited reserves, open market operations are used to directly adjust the nominal interest rate, whereas in a banking system with ample reserves, open market operations are used to indirectly influence the nominal interest rate by changing the money supply. in a banking system with limited reserves, open market operations are used to indirectly influence the nominal interest rate by changing the money supply, whereas in a banking system with ample reserves, open market operations are used to directly adjust the nominal interest rate. in a banking system with limited reserves, open market operations are used to indirectly influence the nominal interest rate by changing the money supply, whereas in a banking system with ample reserves, open market operations are used to directly adjust the nominal interest rate. in a banking system with limited reserves, open market operations are a non-operational monetary policy tool, whereas in a banking system with ample reserves, open market operations are an operational monetary policy tool.

Answer 1

In systems with limited reserves, open market operations ensure sufficient reserves, whereas in systems with ample reserves, they primarily influence the nominal interest rate by altering the money supply.

Step-by-step explanation:

The way that open market operations influence a banking system depends on whether the system has limited or ample reserves. In a system with limited reserves, open market operations are primarily used to ensure that banks maintain a sufficient level of reserves. When the central bank sells bonds, as in the case with Happy Bank, banks spend their reserves to buy these bonds, thus reducing their cash reserves. The banks then need to adjust their activities, such as reducing loans, to bring their reserves back to a desired level. In contrast, in a system with ample reserves, open market operations are used more to indirectly influence the nominal interest rate through changes in the money supply. For instance, when the central bank buys bonds from banks like Happy Bank, it increases the banks' reserves, prompting them to issue more loans, thereby expanding the money supply and potentially affecting interest rates.