ECONOMICS
FEDERAL RESERVE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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an increase in the reserve requirement.
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the Fed buying government securities in the open market.
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a decrease in the prime lending rate.
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a decrease in the discount rate
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Detailed explanation-1: -The most simple example of tight monetary policy would involve increasing interest rates. Alternatively in theory, the Central Bank could try and reduce the money supply. For example, printing less money, or sell long dated government bonds to banking sector. This is very roughly the opposite of quantitative easing.
Detailed explanation-2: -Definition. Tight monetary policy refers to the actions that a central bank takes to limit inflation and an overheating economy. Tight monetary policy is commonly called contractionary monetary policy.
Detailed explanation-3: -In a tightening monetary policy environment, a reduction in the money supply is a factor that can significantly help to slow or keep the domestic currency from inflation. The Fed often looks at tightening monetary policy during times of strong economic growth.
Detailed explanation-4: -Tight monetary policy aims to slow down an overheated economy by increasing interest rates.