ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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increasing reserve requirement
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decreasing income taxes
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increasing government spending
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decreasing interest paid on reserves
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Detailed explanation-1: -This is a monetary policy that aims to increase the money supply in the economy by decreasing interest rates, purchasing government securities by central banks, and lowering the reserve requirements for banks.
Detailed explanation-2: -A Federal Reserve Open Market Sale decreases the money supply. The Fed engages in open market operations very frequently and with great effect. Open market operations are the primary way that the Fed tries to change the money supply.
Detailed explanation-3: -Open market operations (“OMOs”) are the central bank’s primary tool of monetary policy. If the central bank wants interest rates to be lower, it buys bonds.
Detailed explanation-4: -This so-called quantitative easing increases the size of the central bank’s balance sheet and injects new cash into the economy. Banks get additional reserves (the deposits they maintain at the central bank) and the money supply grows.
Detailed explanation-5: -The primary tool the Federal Reserve uses to conduct monetary policy is the federal funds rate-the rate that banks pay for overnight borrowing in the federal funds market.