Important information about open market operations
Let's say that I'm a member of the Federal Reserve and I'm speaking with a group of newly elected members of Congress to explain my operations. The members of Congress have asked me to address the following issues.
The Federal Reserve has traditionally conducted open market operations through the purchase and sale of government bonds. In principle, could the Federal Reserve conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange? Do you see any possible drawbacks to such a policy?
Suppose the Federal Reserve purchased gold or foreign currency. How would this purchase affect the domestic money supply? use this example: lets say open market purchases of government bonds.