OPEN MARKET OPERATIONS

OPEN MARKET OPERATIONS - SECTION 33: OPEN MARKET OPERATIONS...

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SECTION 33: OPEN MARKET OPERATIONS
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AN OPEN MARKET OPERATION The purchase or sale of Treasury securities by the FED in the open market Decisions are made by the Federal Open Market Committee. (FOMC)
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Open Market Operations are used to increase or decrease the amount of money in the economy This influences the overall money supply and the level of interest rates. Most frequently used tool.
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POLICY DESCRIPTION FED purchases bonds from the public. This increases the money supply. (Expansionary policy) FED sells bonds to the public. This decreases the money supply. (Contractionary policy)
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By law, the Treasury cannot borrow directly from the Fed. Thus, the Fed is not permitted to buy bonds from the Treasury. This law prohibits the Fed from printing money to finance government spending. In many countries, the Central Bank prints money to finance government spending. This policy can lead to hyperinflation.
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makes a transaction with a large investment bank. Open market purchases and sales are carried out
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OPEN MARKET OPERATIONS - SECTION 33: OPEN MARKET OPERATIONS...

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