Author Question: A provision of the Dodd-Frank Act of 2010 revised the Federal Reserve Act to A) restrict the ... (Read 95 times)

captainjonesify · **on:** Jun 29, 2018

A provision of the Dodd-Frank Act of 2010 revised the Federal Reserve Act to

A) restrict the Fed's ability to make loans except to commercial banks.
B) allow the Fed to buy commercial paper issued by nonfinancial firms.
C) allow the Fed to make loans to investment banks.
D) allow the Fed to make loans to any individual, partnership, or corporation in unusual and exigent circumstances.

Question 2

How do open market operations work?

What will be an ideal response?

Jsherida · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A

Answer to Question 2

If the FOMC decides to increase the money supply, it will direct the trading desk at the Federal Reserve Bank of New York to buy U.S. Treasury Securities from the public. When the sellers of these securities deposit the funds from the sale into their banks, the reserves of the banking system will rise. This will start the process of expanding the money supply as the increase in reserves expands loans and checking account deposits. If the FOMC wants to reduce the money supply, it will direct the trading desk to sell U.S. Treasury securities. This will decrease reserves, contract loans, contract checking accounts and shrink the money supply.