ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Contractionary and expansionary policies involve modification of the level of money supply in an economy. An expansionary policy increases the supply of money in an economy. On the other hand, a contractionary policy decreases the supply of a country’s currency.

Detailed explanation-2: -Expansionary monetary policy is most suitable when an economy is in recession. This policy, in theory, has the potential to support and return the economy of the nation to the potential GDP. It does this by boosting investment and spending by lowering the interest rates.

Detailed explanation-3: -For which situation would the Federal Reserve MOST likely pursue contractionary monetary policy? The Federal Reserve would like the unemployment rate to increase.

Detailed explanation-4: -To do this, the FOMC could raise its target range for the federal funds rate (FFR) and increase the administered rates-interest on reserve balances (IORB) rate, overnight reverse repurchase agreement (ON RRP) offering rate, and discount rate-accordingly.