ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -What Is Monetary Policy? Central banks use monetary policy to manage the supply of money in a country’s economy. With monetary policy, a central bank increases or decreases the amount of currency and credit in circulation, in a continuing effort to keep inflation, growth and employment on track.

Detailed explanation-2: -When the Federal Reserve purchases bonds in the open market from the public, which of the following are elements of the transaction? The seller gets a payment check to deposit in its bank account. the seller gives up securities to the Federal Reserve Banks.

Detailed explanation-3: -If the Fed buys bonds in the open market, it increases the money supply in the economy by swapping out bonds in exchange for cash to the general public. Conversely, if the Fed sells bonds, it decreases the money supply by removing cash from the economy in exchange for bonds.

Detailed explanation-4: -The M1 money supply is composed of Federal Reserve notes-otherwise known as bills or paper money-and coins that are in circulation outside of the Federal Reserve Banks and the vaults of depository institutions. Paper money is the most significant component of a nation’s money supply.