M&B3 3rd Edition by Dean Croushore

Exercise 10

Describe whether each of the following situations represents defensive open-market operations, dynamic open-market operations, or neither.
a The Fed purchases $40 billion of securities in the open market on September 11, 2001, when a number of major banks face disruptions in their New York operations.
b The Fed reduces the monetary base by $5 billion through open-market sales because infl ation has been rising.
c The Fed increases the monetary base by $3 billion because of increased demand by people who want to collect new state quarters.
d The Fed raises the discount rate by half a percentage point.
e The Fed increases the monetary base by $7 billion because a fi nancial crisis in South America increases the demand for U.S. dollar currency that is shipped abroad.