ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The Fed sells bonds
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the Fed raises reserve requirements
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the Fed buys bonds
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the Fed raises the Fed funds rate
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Detailed explanation-1: -Buying bonds is a tool of expansionary monetary policy because buying bonds will lead to an increase in output. Buying bonds increases the money supply to decrease interest rates.
Detailed explanation-2: -The two major examples of expansionary fiscal policy are tax cuts and increased government spending. Both of these policies are intended to increase aggregate demand while contributing to deficits or drawing down budget surpluses.
Detailed explanation-3: -Expansionary monetary policy includes purchasing government bonds, decreasing the reserve requirement, and decreasing the federal funds interest rate. Contractionary monetary policy includes selling government bonds, increasing the reserve requirement, and increasing the federal funds interest rate.
Detailed explanation-4: -The Federal Reserve has three expansionary monetary policy methods: lowering interest rates, decreasing banks’ reserve requirements, and buying government securities.
Detailed explanation-5: -Decreasing the discount rate. Purchasing government securities. Reducing the reserve requirement.