7. If the Fed decides to use open market operations to raise the interest rate what...
7. If the Fed decides to use open market operations to raise the interest rate what will it do? Be specific about who within the Federal Reserve System makes the decision, and who else is involved in the process.
Homework Answers
The fed can buy securities from the the banks through open
market operations to reduce liquidity in the system and this raises
the interest rate in the economy as supply of funds reduces in the
system. The OMO is a tool to reduce liquidity and supply of funds
and hence raising the interest rates.
The FOMC or (Federal open Market Committee) which is part of
Federal Reserve system makes the decision. The members include 12
members . They are as following
1. The President of Federal Reserve of New York
2. 4 Presidents of the remaining 11 Federal Reserves who preside
for 1 year term
3. 7 Members of the board of governors of the federal
reserve system,
These members decide about the Open Market operations and interest
rate.
Add Answer to:
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