Question

What monetary tools would you use in case of an expansionary monetary policy? What steps should be taken to implement an expansionary fiscal policy?

Answer 1

In United States, for expansionary monetary polic is performed by the open market operations by the Federal Open Market Committee

Steps taken for for implementing it are

Firstly lowering the interest rate so that it can lend to the commercial banks at a low interest rate

Second step is to lower the reserve requirements which means statutory liquidity ratio can be lowered and Bank can have more money to be supply .

In the last step of Federal Open Market Committee buys the government securities.

Due to this these factors, money supply increases which causes more investment in the economy, more employment and overall boom period for the country

answered by: anonymous