Question

There are two types of open market operations: ________ open market operations are intended to change the level of reserves and the monetary base, and ________ open market operations are intended to offset movements in other factors that affect the monetary base.
A) defensive; dynamic
B) defensive; static
C) dynamic; defensive
D) dynamic; static

Answer 1

Answer: C) dynamic; defensive

Explanation:

There are two types of open market operations: dynamic open market operations are intended to change the level of reserves and the monetary base, and defensive open market operations are intended to offset movements in other factors that affect the monetary base.

These are the open market operations.

Open market operations are the primary means of implementing monetary policies where Government controls the supply of money in an economy. Here the Government controls the liquidity of banks, interest rates, inflation rates and exchange rates.

Answer 2

Answer:

The correct answer is letter "C": dynamic; defensive.

Explanation:

Open Market Operations refers to a monetary policy tool in which central banks buy and sell bonds to regulate the money supply in the economy. The U.S. employs open market operations through the Federal Reserve (Fed) Bank.  

Dynamic open market operations refer to the purchase or sale of bonds to increase or decrease the money circulation of the economy by varying the levels of the monetary base.

Defensive open market operations use the fluctuations of the money supply by covering movements in other factors of the monetary base such as changes of the Fed's Treasury deposits or changes of float.