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Compare and contrast the consequences – intended and unintended – of different monetary policy actions of...

  1. Compare and contrast the consequences – intended and unintended – of different monetary policy actions of the Federal Reserve Board to achieve macroeconomic goals of stable prices, low unemployment, and economic growth. What effects can occur with different Federal Reserve actions (such as increasing money supply or raising interest rates)?
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Answer #1

Monetary policy is adopted for different outcomes and results As explained below:

  1. Expansionary monetary policy - This is adopted by decrreasing interest rates or buying government securities or lowering cash reserve ratio to increase money supply in market and hence to lift aggregate demand . This helps in raising prices and lift economy out of recession And lifting real GDP
  2. Contractionary monetary policy - This is adopted by increasing interest rates or selling government securities or increase in cash reserve ratio to decrease money supply in market. This reduces aggregate demand and hence prices fall causing inflation to cool down. Thus economic real GDP falls and inflation lowers.
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