ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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To reduce money supply
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To increase money supply
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To increase taxes
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To decrease taxes
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Detailed explanation-1: -The goal of expansionary monetary policy is to grow the economy, particularly in times of economic trouble. The overall aim is to increase consumer and business spending by increasing the money supply through a variety of measures that improve liquidity.
Detailed explanation-2: -If the Fed, for example, buys or borrows Treasury bills from commercial banks, the central bank will add cash to the accounts, called reserves, that banks are required keep with it. That expands the money supply.
Detailed explanation-3: -Understanding Monetary Policy and Aggregate Demand Expansionary monetary policy involves a central bank buying Treasury notes, decreasing interest rates on loans to banks, or reducing the reserve requirement. All of these actions increase the money supply and lead to lower interest rates.
Detailed explanation-4: -An expansionary monetary policy decreases unemployment as a higher money supply and attractive interest rates stimulate business activities and expansion of the job market.