Question

____   65.   Open market operations generally involve the purchase and sales of

a.	government securities.
b.	stocks and bonds.
c.	coins and currency.
d.	Federal Reserve notes.

____   66.   The Fed relies on open market operations, which work

a.	with the Treasury in creating money to finance bonds.
b.	through major stock exchanges to influence bond prices.
c.	directly through the nonbank public to change their assets.
d.	through the banking system by affecting their reserves.

____   68.   If the Fed sells a T-bill to a commercial bank, how will this affect the money supply?

a.	It will increase the money supply.
b.	It will increase bank reserves.
c.	It will decrease the money supply.
d.	It will have no effect on the money supply.

____   69.   When the Fed wants to expand the money supply through open market operation, it

a.	sells government securities to the Treasury.
b.	sells government securities to member banks.
c.	buys government securities from member banks.
d.	buys government securities from the Treasury.

Answer 1

Answer 65:

Open Market operations are done by Central Bank of a Country to adjust the money supply which involves selling and buying of Government Securities. Hence a is correct

Answer 66

Fed carries out Open Market Operations with Banks hence it affects the Banking System. When Fed buys or sells the Government Securities with Bank the Reserves available with the Banks gets changed due to the money transaction. Hence option d is correct

Answer 68

When Fed sells a T bill, Fed will get a payment from Bank, hence Bank will have less money to make loans i.e money supply will decrease. Hence option c is correct

Answer 69

If Fed wants to expand the money supply, it has to give more money to Banks to lend in the market, hence Fed will purchase the government securities and make payments to Banks. Hence the Bank will have more money and money supply will increase. Hence option c is correct