To loosen credit the Federal Reserve will: A sell U. S. Government securities to bank dealers with an agreement to buy them back at a later date B buy U. S. Government securities from bank dealers with an agreement to sell them back at a later date C sell Foreign Government securities to bank dealers with an agreement to buy them back at a later date D buy Foreign Government securities from bank dealers with an agreement to sell them back at a later date

Question

Jean Fitzgerald

Business

27 November, 15:10

To loosen credit the Federal Reserve will: A sell U. S. Government securities to bank dealers with an agreement to buy them back at a later date B buy U. S. Government securities from bank dealers with an agreement to sell them back at a later date C sell Foreign Government securities to bank dealers with an agreement to buy them back at a later date D buy Foreign Government securities from bank dealers with an agreement to sell them back at a later date

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Answers (1)

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Emery Hancock · Answer 1

B buy U. S. Government securities from bank dealers with an agreement to sell them back at a later date

Explanation:

The Federal reserve uses open market operations to regulate liquidity in the economy. This eases or restricts how bank dealers can give credit.

To ease credit giving ability of bank dealers the Federal Reserve will buy US Government securities from bank dealers. This gives them extra money which they can give out as loans to their customers.

On the other hand when credit needs to be tightened, the Federal Reserve will mop up cash by selling Government securities to the bank dealers