ECONOMICS (CBSE/UGC NET)

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ECONOMICS

MONETARY POLICY

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
The federal government employs a(n) ____ monetary policy during a recession which involves lowering interest or buying bonds or a combination of the two. During a period of inflation, the federal government uses a(n) ____ monetary policy involving raising interest rates or selling bonds or a combination of the two.
A
expansionary ____ exclusionary
B
exclusionary ____ contractionary
C
contractionary ____ expansionary
D
expansionary ____ contractionary
Explanation: 

Detailed explanation-1: -During a recession, loose monetary policy can help the economy recover by sparking aggregate demand because individuals and firms are able to borrow more to spend and invest.

Detailed explanation-2: -Open market operations (OMOs)–the purchase and sale of securities in the open market by a central bank–are a key tool used by the Federal Reserve in the implementation of monetary policy.

Detailed explanation-3: -Offsetting Recessionary Gaps Policymakers may choose to implement a stabilization policy (expansionary policy) to close the gap and increase real GDP. Monetary authorities might increase the amount of money in circulation in the economy by lowering interest rates and boosting government spending.

Detailed explanation-4: -Contractionary. A contractionary policy increases interest rates and limits the outstanding money supply to slow growth and decrease inflation, where the prices of goods and services in an economy rise and reduce the purchasing power of money.

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