Question

question 6

when the federal reserve aims to boost the money supply to stimulate economic growth, it performs open market operations by ________ government bonds, which gives banks more money to lend.

selling
holding
storing
buying

Explanation:

Analyze the Federal Reserve's objective

Using the Monetary Policy Goals and Federal Reserve System knowledge points

To stimulate economic growth, the Federal Reserve aims to increase the money supply in the banking system, lowering interest rates and encouraging lending.

Determine the mechanism of Open Market Operations

Using the Federal Reserve System knowledge point

When the Fed buys government bonds from commercial banks, it pays for them by depositing newly created reserves directly into those banks' accounts. This increases the banks' reserves, giving them more money to lend to businesses and consumers. Conversely, selling bonds drains reserves from the banking system. Therefore, the Fed boosts the money supply by buying bonds.

Answer:

• selling
• holding
• storing
• buying (Correct answer)