The Open Market Committee of the Federal Reserve guides money supply growth. a. true b. false

The Open Market Committee of the Federal Reserve guides money supply growth.
a. true
b. false

 

answer:

a. it is true that the federal open market committee guides money supply growth. as open market operations (OMO) is the sale and purchase of government securities by the feds which in turn affects the level of reserves in the banking system affecting various economic variables including interest rates. OMO affects the federal funds rate which influences the monetary and credit situation of the country. when the feds sell government securities they recieve payments for the securities and hence the reduce the money supply in the economy this is done in case of excess money supply. when the supply of money is less then the feds will purchase government securities for which they would have to pay injecting more money in the economy.

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