ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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They want to impact a Presidential election
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The economy needs to expand
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They are getting ready to issue currency
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None of the above
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Detailed explanation-1: -When the Federal Reserve decreases the reserve ratio, it lowers the amount of cash that banks are required to hold in reserves, allowing them to make more loans to consumers and businesses. This increases the nation’s money supply and expands the economy.
Detailed explanation-2: -A decrease in the discount rate makes it cheaper for commercial banks to borrow money, which results in an increase in available credit and lending activity throughout the economy.
Detailed explanation-3: -The Fed can change the discount rate to try to change the money supply. Suppose the Fed lowers the discount rate. That makes it cheaper for banks to borrow from the Fed if they need reserves. So if banks lend out too much of their reserves and need to get more, they can do so cheaply by borrowing from the Fed.
Detailed explanation-4: -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.