ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Increased
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Reduced
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Either A or B
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None of the above
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Detailed explanation-1: -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-2: -Monetary policy involves the management of the money supply and interest rates by central banks. To stimulate a faltering economy, the central bank will cut interest rates, making it less expensive to borrow while increasing the money supply.
Detailed explanation-3: -If the central bank injects money into the economy through some of the tools at their disposal, such as open market operations. More money in the economy means an increase in spending, raising demand and the price level. This would then stave off the deflationary spiral and help the economy emerge from a recession.
Detailed explanation-4: -Monetary Policy’s Impact on Interest Rates It is true that expansionary monetary policies (or “easy money”) usually lead to a temporary decrease in the level of interest rates.