Question

Explain the recent changes in the Federal Reserve's Open Market Operations since the year 2000.

What are the principal economic goals of the Federal Reserve System?

Answer 1

Federal Reserve uses different monetary policy tools to control money supply, bring price stability and achieve regulated growth in the economy. Since 2000, the Federal Reserve relies more upon the open market operation tool to effectively control the money supply and the funds available to the banks for lending. The Federal Open market committee buys and sells the government securities to control the money supply. In recent times, the Federal Reserve uses this tool more frequently than that of changing the reserve requirements and Federal Fund Rates. More specifically, after the financial crisis of 2007-08, the FOMC bought treasury bills in the open market to inject money in the market.

The principle economic goals are as follows:

A. Maintain adequate money supply in the economy so that economy grows at the right pace.

B. Bring price stability in the economy so that ugly buying behavior is controlled.

C. Increase the employment opportunities with the promoting investment spending in the economy

Above goals are the targets for that, Federal Reserve takes initiatives to regulate the economy.