Question

When the Federal Reserve engages in looser monetary policy through open market operations, it ___________ bonds. Group of answer choices

a) purchase

b) sells

c) calls

d) changes ratings on

Answer 1

Purchase

In a loose monetary policy, the money supply is increased in the economy by Fed's action. Open market operations refers to buying and selling of government securities by central bank from/to commercial banks.

Purchase of securities by central bank increases the cash reserves of commercial banks as central bank give cash in exchange of securities and raises the commercial bank's ability to give credit and therefore increase the money supply in the economy.