ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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During an expansion
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During a recession
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Either A or B
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None of the above
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Detailed explanation-1: -A contractionary monetary policy is a type of monetary policy that is intended to reduce the rate of monetary expansion to fight inflation. A rise in inflation is considered the primary indicator of an overheated economy, which can be the result of extended periods of economic growth.
Detailed explanation-2: -When GDP in a nation is growing too fast, causing inflation to increase beyond a desirable rate of 2%, central banks will implement a contractionary monetary policy. The Federal Reserve, or any central bank, has three primary tools to reduce the money supply.
Detailed explanation-3: -Expansionary Monetary Policy The U.S. Federal Reserve employs expansionary policies whenever it lowers the benchmark federal funds rate or discount rate, decreases required reserves for banks or buys Treasury bonds on the open market. Quantitative Easing, or QE, is another form of expansionary monetary policy.
Detailed explanation-4: -A central bank, such as the Federal Reserve in the U.S., will use expansionary monetary policy to strengthen an economy. The three key actions by the Fed to expand the economy include a decreased discount rate, buying government securities, and a lowered reserve ratio.