Question

You are Chair of the Federal Reserve Board. In your meeting with the Federal Open Market Committee, the committee unanimously votes to increase the money supply using open market operations (OMOs). During the press conference after the meeting, a reporter asks you to explain what OMOs are and how you will use them to increase the money supply.

Answer 1

Answer:

OMOs are the purchase and sale of government securities. To increase the money supply we will buy government securities which increase the amount of reserves in the banking system and fuels deposit expansion

Explanation:

Open market operations (OMOs) is the buying and selling of government securities in an open market or free market.

Therefore we will have to buy more government security in order to increase the money supply because government security are in form of debt or bonds which is issued out by the government on an agreed price and to be paid at a mature date, in this case we have to buy larger quantities of it in order to resell which will inturn bring profit thereby increasing the money supply or money in circulation hence, leading to increase in the amount of reserves in the banking system and fuels deposit expansion.