Question

• If the United States economy is dealing with high inflation and the Federal Reserve implements a “quantitative tightening” monetary policy. Would the Fed – increase or decrease the money supply through FOMO?
• . If the United States economy is in a recession or slowing down and the Federal Reserve implements a “quantitative easing” monetary policy. Would the Fed – increase or decrease the money supply through FOMO

Answer 1

1. The Federal Reserve will DECREASE the money supply by monetary policy because quantitative tightening monetary policy will mean that the Federal Reserve will be increasing the interest rate in order to counter the inflation and it will be leading to decrease in the monetary flow in the economy.

2. The Federal Reserve will INCREASE the money supply by adaptation of quantitative easing of monetary policy because it will be stimulating the demand in the economy by cutting down of the interest rate at the time of the recession or slowing down of the economy, so it will overall increase the monetary flow in the economy and it will lead to INCREASE the money supply.