ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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increase government spending
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increase interest rates
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increase the money supply
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decrease direct taxation
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Detailed explanation-1: -In general, the federal government has two types of tools available to fight inflation. Monetary policy, conducted by the Federal Reserve, can raise interest rates. Or fiscal policy, controlled by the Congress and President, can adjust taxes and spending.
Detailed explanation-2: -An increase in repo rate increases borrowing cost, thus reducing the money supply and helping control inflation.
Detailed explanation-3: -The primary policy for reducing inflation is monetary policy – in particular, raising interest rates reduces demand and helps to bring inflation under control.
Detailed explanation-4: -Reserve Bank of India is the authority to control inflation through monetary policies which it does by increasing bank rates, repo rates, cash reserve ratio, buying dollars, regulating money supply and availability of credit.