ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Conversely, a loose monetary policy is one that seeks to expand or grow an economy, which is done by lowering interest rates, lowering the reserve requirements for banks, and buying U.S. Treasuries.

Detailed explanation-2: -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-3: -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-4: -Interest rates are impacted by many factors, including monetary policy, economic growth, and inflation. An expansionary monetary policy may reduce interest rates in the short run. But it may also boost national output and inflation. Increases in output and inflation often lead to higher interest rates in the long run.

Detailed explanation-5: -To see why the interest rate falls, we recall that if people want to hold less money, then they will want to hold more bonds. Thus, Panel (b) shows that the demand for bonds increases. The higher price of bonds means lower interest rates; lower interest rates restore equilibrium in the money market.