Explain the Open Market Operations.

参考答案: The most widely used instrument of monetary policy is open market operations. Open market operations involve the purchase of securities by a central bank to put additional reserves at the disposal of the banking system or the sale of securities to reduce reserves so that money supply can be altered. Open market operations are the bread-and-butter instrument of Federal Reserve policy in U. S. 　　Because the central bank earns interest income from its securities portfolio, the total revenues earned by the central bank vary in direct proportion to the magnitude of its portfolio. However, this consideration plays no role in the central bank’s decision to acquire or sell securities. Indeed, if it did, the central bank could not perform the chief function of a central bank—conducting monetary policy in a way that contributes to the stability of aggregate expenditures and economic activity. 　　Suppose the U. S. economy is encountering excessive aggregate demand and escalating inflation. The central bank is therefore intent on implementing a policy of monetary restraint. In that event, the central bank would sell securities on the open market. Assume that the central bank sells $BBE million in U. S. Treasury bills to a government securities dealer, receiving payment via a check written against the dealer’s bank checking account. When the central bank receives the check, it "collects" by debiting the reserve account of (making a bookkeeping entry against) the dealer’s commercial bank and returns the check to that bank. Upon receipt of the check, the commercial bank debits the dealer’s demand deposit account. The relevant balance sheets exhibit the following changes.