Which of the following best describes the purpose of open market operations?

The purpose of open market operations is fundamentally to control the availability of money in the economy. This is accomplished by the central bank—such as the Federal Reserve in the United States—buying or selling government securities in the open market. When the central bank purchases securities, it injects liquidity into the banking system, increasing the money supply and making loans more accessible, which can stimulate economic activity. Conversely, when it sells securities, it withdraws liquidity, reducing the money supply and potentially slowing economic activity. This mechanism is essential for implementing monetary policy, influencing interest rates, and achieving broader economic goals such as inflation control and employment stability.

In contrast, adjusting taxation levels is primarily the responsibility of the government rather than the central bank. Setting the discount rate is also a function of the central bank but is a separate tool from open market operations. Creating budgetary surpluses involves fiscal policy decisions related to government revenues and expenditures, which do not directly relate to the operations of the central bank in the context of regulating the money supply.