The United States central bank, the Federal Reserve, buys and sells assets in the open market. Since the central bank has the ability to print U.S. currency, it is able to influence both the money supply and interest rates through open market operations. How do these open market operations work? Salman Khan of the Khan Academy illustrates the Fed’s open market operations.
From this video, you’ll understand:
- How open market operations create more cash in the economy
- How the Federal Reserve affects the supply and demand for cash
- How banks and holdings of cash are influenced