ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -By reducing the reserve requirement, the Fed is executing an expansionary monetary policy, and conversely, when it raises the requirement, it’s exercising a contractionary monetary policy.

Detailed explanation-2: -Monetary policy in the United States comprises the Federal Reserve’s actions and communications to promote maximum employment, stable prices, and moderate long-term interest rates–the economic goals the Congress has instructed the Federal Reserve to pursue.

Detailed explanation-3: -The FOMC changes monetary policy primarily by raising or lowering its target for the federal funds rate, the interest rate for overnight borrowing between banks. Lowering the target rate represents an “easing” of monetary policy, while increasing the target rate is a “tightening” of policy.

Detailed explanation-4: -Increasing the (reserve requirement) ratios reduces the volume of deposits that can be supported by a given level of reserves and, in the absence of other actions, reduces the money stock and raises the cost of credit.

Detailed explanation-5: -The reserve requirement exemption amount will be set at $36.1 million, up from $32.4 million in 2022, and the low reserve tranche will be set at $691.7 million, up from $640.6 million in 2022. The adjustments to both of these amounts are derived using formulas specified in the Federal Reserve Act.