Question

Question 6

1. Which one of the following is an example of an expansionary monetary policy tool?

   		Buy bonds
   		Decrease taxes
   		Increase discount rate
   		Increase government spending

5 points

Question 7

1. Which one of the following is an example of a contractionary monetary policy tool?

   		Buy bonds
   		Increase taxes
   		Increase required reserve ratio
   		Decrease government spending

Answer 1

Q6
Answer
Option 1
Monetary policy is used by the central bank of the country to stabilize the economy. It uses the money supply to change the intrest rate and control economy.
An expansionary monetary policy increases the money supply to stimulate the economy and increase employment in the short run.
Buy bonds increases the money supply as the Fed buys bonds and pay money to commercial banks
Increasing the discount rate decreases the money supply. The spending and taxes are a part of fiscal policy.

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Q7
Answer
Option 3
A contractionary policy decreases money supply to control inflation in the short run so the increase in the required reserve ratio decreases the money supply.