ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If the Fed raises interest rates, it increases the cost of borrowing, making both credit and investment more expensive. This can be done to slow an overheated economy. If the Fed lowers rates, it makes borrowing cheaper, which encourages spending on credit and investment.

Detailed explanation-2: -Contractionary. A contractionary policy increases interest rates and limits the outstanding money supply to slow growth and decrease inflation, where the prices of goods and services in an economy rise and reduce the purchasing power of money.

Detailed explanation-3: -Key Takeaways The Fed can increase the money supply by lowering the reserve requirements for banks, which allows them to lend more money. Conversely, by raising the banks’ reserve requirements, the Fed can decrease the size of the money supply.

Detailed explanation-4: -Lower the short-term interest rates. Reduce the reserve requirements. Expand open market operations (buy securities) Stimulation of economic growth. Increased inflation. Currency devaluation. Decreased unemployment. 06-Dec-2022