ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Another easy monetary policy may lead to lowering the reserve ratio for banks. This means banks have to keep less of their assets in cash-which leads to more money becoming available for borrowers. Because more cash is available to lend, interest rates are pushed lower.

Detailed explanation-2: -Money supply and interest rates have an inverse relationship. A larger money supply lowers market interest rates, making it less expensive for consumers to borrow. Conversely, smaller money supplies tend to raise market interest rates, making it pricier for consumers to take out a loan.

Detailed explanation-3: -Here is how expansionary monetary policy translates into the economy: Lower interest rates decrease the cost of borrowing money, which encourages consumers to increase spending on goods and services and businesses to invest in new equipment.

Detailed explanation-4: -Tight monetary policy aims to slow down an overheated economy by increasing interest rates. Conversely, loose monetary policy aims to stimulate an economy by lowering interest rates.

Detailed explanation-5: -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.