2. Open market operations versus discount loans

Consider an expansionary open market operation. Suppose the Federal Reserve buys government securities from the nonbank public.

Suppose that the sellers of government securities deposit the checks drawn on the New York Fed into their bank account. Then, ceteris paribus, bank reserves INCREASE, currency in circulation (INCREASE, DECREASE, NO CHANGE), and thus the monetary base will INCREASE.

Suppose now that the Federal Reserve wants to increase the monetary base by increasing bank reserves only. Which of the following actions enables the Fed to achieve its goal?

-Lend to commercial banks through the term auction facility

-Require the non-banking public to repay discount loans

-Require commercial banks to repay discount loans

-Lend to the non-banking public at the discount window

The Federal Reserve's control over the amount of government securities it buys or sells is STRONGER than its control over discount window lending. This is because the Fed has complete control over (BANK'S WILLINGNESS TO BORROW FUNDS, THE MONETARY BASE, THE DISCOUNT RATE, PRICES OF GOVERNMENT SECURITIES).

**please answer the bold in parentheses**