Question

In which situation might the federal reserve buy open market operations or lower its discount rates

Answer 1

Answer:

In times of economic downturns to stimulate growth

Explanation:

Open market operations are one of the monetary policies used by the Fed to regulate the money supply in the economy. They involve buying and selling treasury bills to the banks and other financial institutions. Open marker buys, and lowering of interests are expansionary policies used to stimulate economic growth.

By buying treasury bills, the Fed adds money to the banks. Banks exchange treasury bills for liquid cash. As a result,  banks end up with excess money in their custody. To make profits, the bank lends out this money to firms and individuals at competitive rates. The availability of easy and low-interest credit encourages borrowing for investments and consumption. Increased economic activities accelerated economic growth. Lowering of discount rates makes loans cheaper, thereby encouraging borrowing.