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Purchase or sale of government securities by the monetary authorities to increase or decrease the domestic money supply.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
The buying and selling of U.S. Treasury securities. The Federal Reserve conducts open market operations as a primary way of influencing inflation and economic growth. These securities are sold at certain interest rates as a way of controlling the money supply. See also: FOMC.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
open-market operationan instrument of MONETARY POLICY involving the sale or purchase of government TREASURY BILLS and BONDS as a means of controlling the MONEY SUPPLY. If, for example, the monetary authorities wish to increase the money supply, then they will buy bonds from the general public. The money paid out to the public will increase their bank balances. As money flows into the banking system, the banks’ liquidity is increased, enabling them to increase their lending. This results in the multiple creation of new bank deposits and, hence, an expansion of the money supply.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005