ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The primary tools that central banks use to expand monetary policy include lowering the discount rate, increasing the purchase of government securities, and reducing the reserve requirement.

Detailed explanation-2: -Expansionary Monetary Policy The U.S. Federal Reserve employs expansionary policies whenever it lowers the benchmark federal funds rate or discount rate, decreases required reserves for banks or buys Treasury bonds on the open market. Quantitative Easing, or QE, is another form of expansionary monetary policy.

Detailed explanation-3: -A lower reserve requirement means the Federal Reserve is pursuing an expansionary monetary policy. The lower reserve requirement means banks do not need to keep as much cash on hand. This gives them more money for consumer and business loans.

Detailed explanation-4: -Expansionary Monetary Policy Graph Lower interest rates decrease the cost of borrowing money, which encourages consumers to increase spending on goods and services and businesses to invest in new equipment.