Bus 305

BUS305

1. In principle could the Federal Reserve conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange?

• Stocks represent ownership in a company. If the government were to buy common stock, they would become a shareholder and part owner in the company that issues the stock. A share of stock is one of the equal parts into which the ownership of a company is divided. If that company does well the value of the stock increases, however if the company does poorly then the value of the stock drops and a loss for the investor occurs. The same hold true if the government sells stocks but a more invasive risk can occur, for example; If a large enough corporation purchases enough stock to have a nearly controlling interest what state would this put the government in? Bonds are a much safer way for the government to extend its need for investment and to control the supply of money with little to no risk of take over or manipulation. The FOMC determines the amount of government securities to buy or sell therefore protecting the government, stocks are available