ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Decreasing government spending
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Lowering interest rates
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Raising interest rates
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Selling bonds to investors
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Detailed explanation-1: -Interest rates and inflation are inversely proportional. Low interest rates lead to people borrowing more from banks and saving less. This increases the supply of money in the economy and also the demand. As a result, prices of the commodities rise and cause inflation.
Detailed explanation-2: -Expansionary monetary policy works by expanding the money supply faster than usual or lowering short-term interest rates. It is enacted by central banks and comes about through open market operations, reserve requirements, and setting interest rates.
Detailed explanation-3: -An expansionary policy aims to increase the money supply. For example, the central bank might engage in open market operations.
Detailed explanation-4: -An open market sale of government securities will cause the money supply to decrease. The buyer of securities will pay the Fed for the sale. This will reduce the money supply in the economy.