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Open market operations involve which activity?
AChanging the share of deposits banks must hold back
BBuying or selling government bonds in the market
CChanging the rate charged on loans to member banks
DSetting the cash an investor must put up for shares
Answer & Solution
Correct answer: B. Buying or selling government bonds in the market
1. Open market operations are the purchase or sale of government bonds by the central bank.
2. The purpose of those purchases and sales is to stimulate or slow down the economy.
3. Changing the share of deposits held back is the reserve requirement, a different tool.
4. The rate charged on loans to member banks is the discount rate, which is the third tool.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 15 "Understanding Money and Financial Institutions", section 15.2 The Federal Reserve System_
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