Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

What authority is responsible for the Fed's principal tool—open-market operations?

1. Federal Reserve Board

2. Federal Open Market Committee (FOMC)

3. U.S. Treasury

4. Consumer Financial Protection Bureau

The correct answer is: Federal Open Market Committee (FOMC)

The Federal Open Market Committee (FOMC) is the authority responsible for the Fed's principal tool—open-market operations. The FOMC plays a crucial role in setting monetary policy in the United States, primarily through the buying and selling of government securities. These activities influence the level of reserves in the banking system and, consequently, affect interest rates and overall economic activity. The FOMC meets regularly to assess the economy and decide the course of action regarding open-market operations. By adjusting the supply of money in the economy through these operations, the FOMC aims to achieve key economic objectives such as maximum employment, stable prices, and moderate long-term interest rates, which are foundational to the economic health of the country. This function is distinct from the roles of other options presented. For instance, the Federal Reserve Board oversees the entire Federal Reserve System and provides general supervision, but it is the FOMC that specifically directs open-market operations. The U.S. Treasury manages federal finances and the issuance of government debt but does not control monetary policy operations. Lastly, the Consumer Financial Protection Bureau is focused on consumer protection within the financial sector and does not have any authority over monetary policy or open-market operations.