Which action would the FED most likely take as part of an expansionary monetary policy?

A) increase the discount rate

B) increase the reserve requirement

C) buy securities on the open market

D) increase the rate on required reserves

C) buy securities on the open market

Explanation:

The Fed has several tools that it can use to effect monetary expansion. Buying securities in the open market is one of the tools that result in expansion. When the Fed buy and sell securities in the markets, it conducts open market operations OPO.

By buying securities from banks, the Fed aims at reducing the interests rates. When the Fed buys securities, it increases money held by banks. It is the equivalents of large cash deposits to the banks. The Fed is encouraging banks to loan out money to firms and individual. Because banks will have too much money, they will entice borrowing by offering low-interest rates.

The Fed buying securities is increasing the money supply in the economy.