Question

Open market operations involve the

a.purchase or sale of bonds by a central bank.
b.Federal Reserve dictating the discount rate to influence the money supply.
c.purchase of securities from the U.S. Treasury.
d.loaning of deposits between private banks.
of Federal Reserve notes.

Answer 1

Open market operations is the practice where a central bank buys or sells U.S. Treasury bonds to control bank reserves and interest rates, specifically targeting the federal funds rate.

Step-by-step explanation:

Open market operations involve the purchase or sale of bonds by a central bank, specifically U.S. Treasury bonds, to regulate the quantity of bank reserves and the level of interest rates. The primary target of these operations is the federal funds rate, which is the short-term interest rate charged by commercial banks on overnight loans to each other. While it is a central bank's tool for monetary policy, open market operations are distinct from the Federal Reserve dictating the discount rate and also different from the purchase of securities directly from the U.S. Treasury or the loaning of deposits between private banks.