Question

Which of the following options are tools for the Fed to engage in expansionary monetary policy?...

Which of the following options are tools for the Fed to engage in expansionary monetary policy?

Select one:

a. Buy government securities, decrease the discount rate, decrease the reserve requirements.

b. Buy government securities, increase the discount rate, decrease the reserve requirements.

c. Sell government securities, decrease the discount rate, decrease the reserve requirements.

d. Sell government securities, increase the discount rate, increase the reserve requirement

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Answer #1

Answer: a) Buy government securities, decrease the discount rate, decrease the reserve requirements.

Expansionary monetary policy is when a central bank uses its tools to stimulate excess money supply in the economy.

  • Fed buys securities when it wants expansionary monetary policy.
  • Discount rate is the interest that fed charges commercial banks. To increase the money supply fed decreases the discount rate (Repo rate & reverse repo rate)
  • Fed also lowers the reserve requirement (CRR & SLR)
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