Open market operations are a form of monetary policy

Open market operations are a form of monetary policy - , ....

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Open market operations are a form of monetary policy, meaning that the Fed directly  affects the money supply. Open market operations are the sale and purchase of  government bonds issued and regulated by the Fed. When the Fed sells government  bon ds, the public exchanges currency for bonds, thus resulting in a shrinking of the  money supply. When the Fed purchases government bonds, the Fed exchanges  currency for bonds, thus resulting in an increase in the money supply. Open market  operations are the most common tool that the Fed uses to affect the money supply. In  fact, almost every weekday government bonds are bought and sold in New York City.  The second way that the Fed can influence the money supply is through changing the  reserve requirements. This is a form of fiscal policy because the Fed is working with the  finances of banks to affect the money supply rather than with the money suppl y directly.  We learned in the section on the purpose of 
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This note was uploaded on 12/13/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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Open market operations are a form of monetary policy - , ....

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