Question

Assignment 11:

Think about the two types of monetary policy: expansionary and contractionary. Using what you have learned about open market operations, determine whether the noted actions below coincide with expansionary monetary policy or contractionary monetary policy. "explain each action in at least one paragraph"

Action: Government securities are sold by the Fed.

1. Expansionary
2. Contractionary

Action: The federal funds rate decreases.

3. Expansionary
4. Contractionary

Action: The money supply increases.

5. Expansionary
6. contractionary

Answer 1

Answer : 1) The answer is "contractionary monetary policy".

For contractionary monetary policy Fed sell government securities. This decrease the money supply in the economy.

2) The answer is "expansionary monetary policy".

For expansionary monetary policy federal fund rate decrease. As a result, Commercial banks get more money for lend. This increase the money supply in the economy.

3) The answer is "expansionary monetary policy".

For expansionary monetary policy the money supply increase in the economy. For contractionary monetary policy the money supply decrease in the economy.