Open market operations include changing reserve requirements, changing the discount rate, open market sales, and open market purchases.

Answer the following statement(s) true (T) or false (F)

Ans: False

Explanation -

Open market operations only include the open market purchase and sale of bonds. When the economy is in recession, the central bank purchases bonds from the open market. Banks and financial institutions sell these bonds and liquidity is infused in the banking system to drive interest rates lower. When inflationary pressure is high, the central bank sells bonds in the open market. Banks and financial institutions purchase these bonds and liquidity is absorbed from the financial system. This drives interest rates higher. The other tools available with the fed are changing the discount rate and changing the reserve requirement. However, open market operations just include purchase and sale of bonds.