ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The implication of tight monetary policy is to bring down inflation by limiting the circulation of money in the economy. It makes money more expensive to borrow by increasing short-term interest rates. Thus, a nation’s central bank takes corrective action to save the economy from slipping into hyperinflation.

Detailed explanation-2: -Tight monetary policy is an action undertaken by a central bank such as the Federal Reserve to slow down overheated economic growth. Central banks engage in tight monetary policy when an economy is accelerating too quickly or inflation-overall prices-is rising too fast.

Detailed explanation-3: -Today, the Fed uses its tools to control the supply of money to help stabilize the economy. When the economy is slumping, the Fed increases the supply of money to spur growth. Conversely, when inflation is threatening, the Fed reduces the risk by shrinking the supply.

Detailed explanation-4: -The FOMC started the “tightening” process in March 2022 by raising interest rates 0.25%. The Fed raised interest rates again in May by 0.50% and followed that up with 0.75% rate hikes in June, July, September and November.

Detailed explanation-5: -The Federal Reserve has three expansionary monetary policy methods: lowering interest rates, decreasing banks’ reserve requirements, and buying government securities. Expansionary monetary policy’s aim is to make it easier for individuals and companies to borrow and spend money-actions that all stimulate the economy.