ECONOMICS (CBSE/UGC NET)

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: -Tightening policy occurs when central banks raise the federal funds rate, and easing occurs when central banks lower the federal funds rate. 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.

Detailed explanation-3: -Monetary policy refers to the steps taken by a country’s central bank to control the money supply for economic stability. For example, policymakers manipulate money circulation for increasing employment, GDP, price stability by using tools such as interest rates, reserves, bonds, etc.

Detailed explanation-4: -Expansionary monetary policy: This type of monetary policy can increase the economy’s money supply through decreasing interest rates, lowering reserve requirements for banks, and the purchase of government securities by central banks.