Question

All of the following statements about open market operations are accurate, EXCEPT:

a. the FOMC raises interest rates by purchasing government securities
b. higher interest rates cause the economy to slow down
c. in a tight money market, less money is available for loans
d. the FOMC stimulates the economy by purchasing government securities.

Answer 1

The incorrect statement about open market operations is that the FOMC raises interest rates by purchasing government securities. In fact, purchasing securities lowers interest rates, while selling them raises interest rates.

Step-by-step explanation:

The question you've asked relates to the statements about open market operations, which are the tools used by the Federal Reserve to conduct monetary policy. One of the listed statements is not accurate regarding how these operations affect interest rates and the economy.

The incorrect statement is: a. the FOMC raises interest rates by purchasing government securities. Actually, the Federal Open Market Committee (FOMC) lowers interest rates by purchasing government securities, which increases the money supply by adding to bank reserves. Conversely, when the FOMC sells government securities, it takes money out of circulation and raises interest rates.