Open Market Operations

Open Market Operations – Macroeconomics – Ari Davis Open market operations (in short) are the process of implementing monetary policy. This occurs due to a central bank which controls the short term interest rate and the supply of base money in an economy, and as a result ultimately the total money supply. This involves meeting the demand of base money at the target interest rate by buying and selling government securities. The Fed conducts open market operations when it buys or sells government bonds.

When there is an increased demand for base money the Fed takes the necessary action to increase the base supply of money. In order to increase the money supply the Fed instructs its bond traders in New York to buy back bonds from the public in the bond markets. Because the Fed is paying for these bonds there is an increase in the number of dollars in the economy. Some of this new money is held as currency (the owner literally holds onto the money in their ‘hand’). This means that for every dollar the money supply increases by exactly one dollar.

Whereas the new money that is deposited into banks increase the money supply by more than a dollar (for every new dollar) because of the money multiplier effect. The money multiplier is the amount of money the banking system generates with each dollar of reserves. Therefore the fractional reserve banking system is the facet that dramatically increases the money supply. On the other hand, if the Fed wish’s to reduce the money supply they will sell government bonds to the public through the bond markets.

The public pays for these bonds (which goes to the Feds) and thus money is withdrawn from the economy and the money supply is decreased. People will often withdraw money from banks in order to purchase government bonds. Thus the money that is withdrawn leaves the banks with fewer reserves and thus the banks must reduce the amount of money they lend out. Nowadays most money is in the form of electronic records rather than cash. Therefore open market operations are conducted simply by electronically increasing or decreasing (‘crediting’ or ‘debiting’) the amount of base oney that the bank has in its reserve account at the central bank. As a result, Open Market operations do not literally require new currency. However, this will increase the central bank’s requirement to print currency when the member bank demands banknotes, in exchange for a decrease in its electronic balance. In The USA, the Fed sets an interest rate target for the Fed funds market. When the Fed funds rate is higher than the target, the Reserve Bank will most probably increase the money supply. When the actual Fed funds rate is lower than its target, the central Bank will usually decrease the money supply.

Monetary targets such as inflation, interest rates or exchange rates are used to guide this implementation. I believe Open Market Operations are a good system because they are easy to conduct and they help keep the money supply at a manageable level. The Fed has complete control and therefore they are usually conducted in the hands of professionals (who know what is best for the economy). Open market operations are flexible, easily reversed and can be implemented quickly. With the state of trading and the modern markets today, Open Market Operations are a necessity in order to keep the economy strong.

Calculate the price
Make an order in advance and get the best price
Pages (550 words)
$0.00
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Upload your instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with MyStudyWriters
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
Testimonials
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
Business and administrative studies
excellent job!
Customer 452773, May 25th, 2023
Leadership Studies
awesome work as always
Customer 452773, August 19th, 2023
BUSINESSADMINECO535
excellent work
Customer 452773, October 6th, 2023
Business and administrative studies
Perfect
Customer 452773, February 23rd, 2023
Business and administrative studies
Thank you for your hard work
Customer 452773, October 19th, 2023
Business and administrative studies
Thank you
Customer 452773, March 19th, 2023
business
Thank you for your hard work and help.
Customer 452773, February 13th, 2023
Business Studies
Thank you very much for a good job done and a quick turn around time.
Customer 452615, March 31st, 2021
Business and administrative studies
Thank you for your hard work and effort. Made a 96 out of 125 points Lacked information from the rubic
Customer 452773, October 27th, 2023
Human Resources Management (HRM)
excellent job
Customer 452773, June 25th, 2023
Business and administrative studies
perfect
Customer 452773, February 23rd, 2023
Humanities
Thank youuuu
Customer 452729, May 30th, 2021
11,595
Customer reviews in total
96%
Current satisfaction rate
3 pages
Average paper length
37%
Customers referred by a friend
OUR GIFT TO YOU
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat
Close

Sometimes it is hard to do all the work on your own

Let us help you get a good grade on your paper. Get professional help and free up your time for more important courses. Let us handle your;

  • Dissertations and Thesis
  • Essays
  • All Assignments

  • Research papers
  • Terms Papers
  • Online Classes
Live ChatWhatsApp