ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Discount Rate If the Fed wants to give banks more reserves, it can reduce the interest rate it charges, thereby inducing banks to borrow more. Alternatively, it can soak up reserves by raising its rate and persuading the banks to reduce borrowing.

Detailed explanation-2: -If inflation is too high, tightening monetary policy (which raises interest rates in the economy) will help to bring inflation back towards the target, but will also be likely to reduce economic growth and put upward pressure on unemployment, all else being equal.

Detailed explanation-3: -To curb inflation. The Federal Reserve, the nation’s central bank, can’t help fix supply problems, but it can help slow the demand part of the inflation equation. When the Fed raises its benchmark interest rate, it makes all kinds of lending more expensive. Over time, that helps supply and demand get back in sync.

Detailed explanation-4: -An easing monetary policy environment serves the opposite purpose. In an easing policy environment, the central bank lowers rates to stimulate growth in the economy. Lower rates lead consumers to borrow more, also effectively increasing the money supply.