Answer to Question #112215 in Macroeconomics for Shernyka

Question

As a policy advisor, explain how you would use the OMO to secure 2-3% economic growth and reduce unemployment in an economy in slight recession?

Answer 1

OMO- open market operation is a strategy applied by the central bank to take or offer liquidity in the currency from or to banks. OMO is used by the central bank as the basic methods of implementing monetery policies. When the government policies adjust the labour market during recessions can increase the rate of unemployment.OMO can be used to reduce unemployment and secure 2-3% economic growth in an economy in slight recession by manipulating the supply of base money and short term interest rates in the economy.