Think about the two types of monetary policy: expansionary and contractionary. Using what you have learned...
Think about the two types of monetary policy: expansionary and contractionary. Using what you have learned about open market operations, determine whether the noted actions below coincide with expansionary monetary policy or contractionary monetary policy. In a few sentences explain how.
Action: Government securities are sold by the Fed.
- Expansionary
- Contractionary
Action: The federal funds rate decreases.
- Expansionary
- Contractionary
Action: The money supply increases.
- Expansionary
- contractionary
Homework Answers
Action: Government securities are sold by the Fed.
- it is a contractionary monetary policy.
As fed sold government securities it is taking back the money from economy which will reduce the supply of money.
Action: The federal funds rate decreases.
It is an expansionary monetary policy.
Due to decrease in fed rate bank can borrow money from fed in cheap rate and loanble fund will be increased accompanied by low interest rates.
Action: The money supply increases.
It is expansionary monetary policy.
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