The Economy And Monetarty Policy
In principle, could the Federal Reserve conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange? Do you see any possible drawbacks to such a policy?
"In open market purchases, the Federal Reserve buys government bonds from the private sector" (O'Sullivan & Sheffrin, 2006, 646). This increases the money supply. "Each bank must keep an account with the Fed containing both its required and excess reserves. The check written against the Federal Reserve increases the bank's total reserves, essentially giving it more money to loan out" (O'Sullivan & Sheffrin, 2006, 647).
"In open market sales, the Federal Reserve sells government bonds to the private sector" (O'Sullivan & Sheffrin, 2006, 646). Open market sales will decrease the money supply. If the Federal Reserve sells government bonds to someone, that person will pay for the bonds with a check drawn on his or her bank and give this check to the Federal Reserve. The bank must......
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