ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In this situation, the FOMC might decide to use contractionary monetary policy to bring actual and expected inflation back toward its target, to maintain price stability.

Detailed explanation-2: -Tight, or contractionary monetary policy is a course of action undertaken by a central bank such as the Federal Reserve to slow down overheated economic growth, to constrict spending in an economy that is seen to be accelerating too quickly, or to curb inflation when it is rising too fast.

Detailed explanation-3: -Expansionary fiscal policy includes tax cuts, transfer payments, rebates and increased government spending on projects such as infrastructure improvements. For example, it can increase discretionary government spending, infusing the economy with more money through government contracts.

Detailed explanation-4: -Expansionary monetary policy is when a central bank uses its tools to stimulate the economy. That increases the money supply, lowers interest rates, and increases demand. It boosts economic growth. It lowers the value of the currency, thereby decreasing the exchange rate.

Detailed explanation-5: -Conducting monetary policy If the Fed, for example, buys or borrows Treasury bills from commercial banks, the central bank will add cash to the accounts, called reserves, that banks are required keep with it. That expands the money supply.