Answer to Question #90057 in Macroeconomics for shirley

Question

what change in the open market operation would u recommend and how it affects the cash rate?

Answer 1

An open market is the Central Bank's operations for buying and selling government securities in the secondary market. Purchases on the open market are paid by the Central Bank by increasing the seller’s bank account.

The total cash reserves of the banking system are increasing, which, in turn, leads to an increase in the money supply. An increase in the volume of transactions for the sale and purchase will lead to a change in the price and yield of securities.

Consequently, the central bank can influence interest rates in this way. This is the best tool, but its effectiveness is reduced by the fact that the expectations of market participants are not quite predictable.