Question

What happens to the money supply and the economy when the following monetary policy actions are...

What happens to the money supply and the economy when the following monetary policy actions are taken:

  1. Reserve Requirements are increased?
  2. Reserve Requirements are decreased?
  3. The Fed sells bonds? (also called quantitative tightening)
  4. The Fed buys bonds? (also called quantitative easing)
  5. Discount rate increases?
  6. Discount rate decreases?
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Answer #1

When reserve requirements will increase money supply will decrease and economy will decrease

When reserve requirements will decrease money supply will increase which will help in lending more and economy will increase

When fed sells bond it will decrease the money supply by removing cash and economy will decrease

When fed purchases bonds it will increase the money supply and economy will increase

When discount rate increases there is decrease in money supply as well as in the economy

When discount rate decreases therevis increase in the money supply as well as in the economy

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