ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Expansionary monetary policy: This type of monetary policy can increase the economy’s money supply through decreasing interest rates, lowering reserve requirements for banks, and the purchase of government securities by central banks.

Detailed explanation-2: -Conducting monetary policy If the Fed, for example, buys or borrows Treasury bills from commercial banks, the central bank will add cash to the accounts, called reserves, that banks are required keep with it. That expands the money supply.

Detailed explanation-3: -Contractionary Monetary Policy Graph Higher interest rates increase the cost of borrowing money, which discourages consumers from spending on some goods and services and reduces businesses’ investment in new equipment.

Detailed explanation-4: -Monetary policy is a set of actions to control a nation’s overall money supply and achieve economic growth. Monetary policy strategies include revising interest rates and changing bank reserve requirements. Monetary policy is commonly classified as either expansionary or contractionary.