Question

Determine whether each of the following is considered standard open market operations or quantitative easing:

a. The Fed buys $100 billion in student-loan-backed securities.
b. The Fed sells $400 billion in short-term Treasury securities.
c. The Fed buys $500 billion in 30-year (long-term) Treasury securities.

Answer 1

Buying student-loan-backed securities or long-term Treasury securities suggests quantitative easing, while selling short-term Treasury securities aligns with standard open market operations.

Step-by-step explanation:

The question asks to categorize the Federal Reserve's actions as either standard open market operations or quantitative easing (QE). The purchase of student-loan-backed securities or long-term Treasury securities typically indicates quantitative easing, as these actions are meant to influence long-term interest rates and introduce liquidity into the financial system when traditional monetary policy tools are less effective, particularly when short-term interest rates are near zero. On the other hand, the selling of short-term Treasury securities is more indicative of standard open market operations, which are used to manage the money supply and control short-term interest rates.