ECONOMICS (CBSE/UGC NET)

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ECONOMICS

MONETARY POLICY

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
The FED is concerned about rising levels of unemployment. What would they do to the Reserve Requirement?Remember, think about what part of the business cycle we are on, and what type of monetary policy you would use!
A
Lower it
B
Raise it
C
Either A or B
D
None of the above
Explanation: 

Detailed explanation-1: -Increasing the (reserve requirement) ratios reduces the volume of deposits that can be supported by a given level of reserves and, in the absence of other actions, reduces the money stock and raises the cost of credit.

Detailed explanation-2: -The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/4 to 4-1/2 percent.

Detailed explanation-3: -Which part of the Federal Reserve Organization is the only part that is totally influenced by any political office from within the government? The Federal Reserve institutes a tight monetary policy in order to reign in inflation.

Detailed explanation-4: -The Fed can increase the money supply by lowering the reserve requirements for banks, which allows them to lend more money. Conversely, by raising the banks’ reserve requirements, the Fed can decrease the size of the money supply.

There is 1 question to complete.
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