View the step-by-step solution to:


Consider an expansionary open market operation. Suppose the Federal Reserve buys government securities

from the nonbank public.

Suppose that the sellers of government securities deposit the checks drawn on the New York Fed into their bank account. Then, ceteris paribus, bank reserves increase, decrease or do not change   , currency in circulation increase, decrease or do not change   , and thus the monetary base will increase, decrease or do not change   .

Suppose now that the Federal Reserve wants to increase the monetary base by increasing bank reserves only. Which of the following actions enables the Fed to achieve its goal?

Lend to the non-banking public through the term auction facility

Lend to commercial banks through the term auction facility

Buy the government securities exclusively from the non-banking public

Require the non-banking public to repay discount loans

The Federal Reserve's control over the amount of government securities it buys or sells is stronger weaker, the same as   than its control over discount window lending. This is because the Fed has complete control over the monetary base, discount rate, prices of government securities, banks wiliness to borrow funds   .

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Let our 24/7 Economics tutors help you get unstuck! Ask your first question.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors