ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Tight monetary policy aims to slow down an overheated economy by increasing interest rates. Conversely, loose monetary policy aims to stimulate an economy by lowering interest rates.

Detailed explanation-2: -Contractionary Monetary Policy Also known as tight monetary policy, contractionary policy decreases a nation’s money supply to curb rampant inflation and keep the economy in balance. A central bank will likely hike interest rates and try to slow the growth of money and prices.

Detailed explanation-3: -In easy money policy, the interest rates are lower, therefore it is easier to borrow, thereby increasing money circulation in the economy. In the tight money policy, the interest rates are higher, therefore it is difficult to borrow and the money circulation will reduce in the economy.

Detailed explanation-4: -It is the Federal Reserve’s actions, as a central bank, to achieve three goals specified by Congress: maximum employment, stable prices, and moderate long-term interest rates in the United States (figure 3.1).