Question

Question 1 3 pts The Federal Open Market Committee (FOMC), buys and sells securities on a market. O primary O product O factor O secondary Next Not saved Submit Quiz

Answer 1

1) The Federal Open Market Committee (FOMC), buys and sells securities on a secondary market.

2) The proportion of deposits that banks are legally required to deposit with the central bank is known as reserve requirements. If the money supply is required to be reduced, the reserve requirement is increased and if the money supply is to be increased, the reserve requirement is decreased.

3) A central bank that desires to reduce the quantity of money in the economy can raise the reserve requirement. By doing so, banks will have to keep a higher proportion of money with the central bank, which will leave less money with the banks. Now, the banks will lesser money to provide loan or do investments. This reduces the money supply in the economy.