The two tasks with which the Fed is charged are promoting the health of the bank

Question

The two tasks with which the Fed is charged are promoting the health of the banking industry and promoting the overall health of the economy. Various regulations allow the Fed to achieve the first of these tasks. Three tools allow it to achieve the second.

A. List and briefly describe the three policy tools the Fed can use to promote the overall health of the economy. (3 points)

B. How should the Fed adjust each of the three policy tools if it wants to conduct expansionary monetary policy? Contractionary monetary policy? (6 points)

C. Explain why the required reserve ratio is rarely used to conduct expansionary monetary policy. Specifically state how it would be used, and why that's usually not a great idea. (4 points)

Explanation / Answer

A. 3 TOOLSvia Monetary policy are:

1.Open Market operations

2. Discount Rate

3. Reserve requirements

B. Contractionary Policy' A type of policy that is used as a macroeconomic tool by the country's central bank or finance ministry to slow down an economy. Contractionary policies are enacted by a government to reduce the money supply and ultimately the spending in a country.

This is done primarily through:

1. Increasing interest rates
2. Increasing reserve requirements
3. Reducing the money supply, directly or indirectly

C. Expansionary monetary policy is an increase in the quantity of money in circulation, with corresponding reductions in interest rates, for the expressed purpose of stimulating the economy to correct or prevent a business-cycle contraction and to address the problem of unemployment.

Its not a great idea because it increase unemplyment.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.