Question

The major purpose of the Federal Reserve buying government securities in open market operations is to

Multiple Choice

allow banks to increase their lending

reise money for government spending

reduce the excess reserves of banks

increase interest rates

Answer 1

Option A.

• The major purpose of the Federal Reserve buying government securities is Open Market operations is to allow banks to increase their lending.
• The Fed conducts open market operations by buying and selling bonds in the market.
• It purchases bonds from the market to increase the money supply in the economy and sells bonds in the market to reduce the money supply in the economy to avoid excess lending of cash.
• When Fed purchases the bonds, the banks have excess reserves with them and can increase their lending to people in need.