Asked by unknown person on Jun 15, 2024
Verified
Which of the following represents a tight monetary policy by the Fed?
A) The required reserve ratio increases,the discount rate increases,and the Fed buys government securities.
B) The required reserve ratio increases,the discount rate increases,and the Fed sells government securities.
C) The required reserve ratio increases,the discount rate decreases,and the Fed sells government securities.
D) The required reserve ratio decreases,the discount rate increases,and the Fed buys government securities.
Tight Monetary Policy
A central bank policy aimed at reducing inflation and slowing down the growth in the money supply by raising interest rates and other measures.
Required Reserve Ratio
The fraction of deposits that banks are required by law to keep on hand as reserves or with the central bank.
Discount Rate
The interest rate charged by central banks to commercial banks for loans.
- Gain insight into the responsibilities and tools the Federal Reserve uses for monetary policy management.
- Understand the consequences of monetary policy adjustments on the economic landscape, focusing on inflation rates and GDP discrepancies.
Verified Answer
KT
Kelley TannerJun 21, 2024
Final Answer :
B
Explanation :
A tight monetary policy is designed to slow down economic growth and curb inflation. By increasing the required reserve ratio and the discount rate, the Fed makes it more expensive for banks to borrow money and lend it out, which in turn reduces the money supply. Selling government securities also removes money from circulation. Therefore, option B represents a tight monetary policy.
Learning Objectives
- Gain insight into the responsibilities and tools the Federal Reserve uses for monetary policy management.
- Understand the consequences of monetary policy adjustments on the economic landscape, focusing on inflation rates and GDP discrepancies.