ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Lower the RRR, Lower the DR, Lower Interest on Reserves, Buy Bonds
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Raise the RRR, Raise the DR, Raise Interest on Reserves, Sell Bonds
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Either A or B
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None of the above
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Detailed explanation-1: -When the Federal Reserve decreases the reserve ratio, it lowers the amount of cash that banks are required to hold in reserves, allowing them to make more loans to consumers and businesses. This increases the nation’s money supply and expands the economy.
Detailed explanation-2: -A contractionary policy is a tool used to reduce government spending or the rate of monetary expansion by a central bank to combat rising inflation. The main contractionary policies employed by the United States include raising interest rates, increasing bank reserve requirements, and selling government securities.
Detailed explanation-3: -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-4: -If the Fed wants to stimulate the economy (increase aggregate demand), it will increase the money supply by buying government bonds, lowering the reserve ration, and/or raising the discount rate.