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What tool does the Federal Reserve use to influence the volume of money in the economy by buying and selling government securities?


A. personal income tax


B. reserve requirement


C.loose-money policy


D. open-market operations

Sagot :

It is "D. open-market operations" that is a tool the Federal Reserve uses to influence the volume of money in the economy by buying and selling government securities.
palebadgworthy

The correct answer is D.

Open market operations are the main instrument used by the Federal Reserve to execute the monetary policy of the US. They consist on the sale or purchase of goverment securities to/from the banking system.

When he Fed sells securities from the federal goverment or its related agencies, it collects money from the banking system that is removed from circulation and the money supply is reduced. On the other hand, if the Fed buys the securities, the money that it pays for them is pumped into the economy, increasing the money supply or amount of money in circulation.

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