Question

Authority to conduct open market operations, which consists of buying and selling of , rests with the Committee. Reserves equal bank deposit at the Fed plus . M1 is equal to currency held outside banks, checkable deposits, and . If the Fed conducts an open market purchase (specifically, it buys government securities from, say, Bank A), then government securities will move from the bank to the Fed and the Fed will increase the of the bank.

Answer 1

Answer:

If the Fed conducts an open market purchase by specifically buying government securities from the Bank, banks' reserves increase and the quantity of money increases.

Explanation:

The Federal Reserve (Fed) buys and sells government securities to control the money supply. This activity is called open market operations (OPO). By buying and selling government securities in the free market, the Fed can expand or contract the amount of money in the banking system and pursue its monetary policy.

To increase the money supply, the Fed will purchase bonds from banks to inject money into the banking system.

The Federal Reserve's latest effort to calm the financial system — pumping $100 billion a day into trillion-dollar funding markets — is intended to be a temporary role, born of necessity. But it may turn out to be a significant expansion of the Fed's footprint.