Question

• . If the United States economy is in a recession or slowing down and the Federal Reserve implements a “quantitative easing” monetary policy. What three monetary tools would the Federal Reserve use and would they increase or decrease the monetary tools? (List the three tools and the increase or decrease of each tool). (Hint – “IR”, “MS”, “RR”)

. If the United States economy is dealing with high inflation and the Federal Reserve implements a “quantitative tightening” monetary policy. What three monetary tools would the Federal Reserve use and would they increase or decrease the monetary tools? (List the three tools and the increase or decrease of each tool). (Hint – “IR”, “MS”, “RR”)

Answer 1

1 A. DECREASING THE INTEREST RATE-

B. INCREASING THE MONETARY E-SUPPLY

C. DECREASING THE RESERVE REQUIREMENT

- Central Bank will be decreasing the interest rate along with increasing the monetary supply and decrease the Reserve requirement in order to stimulate the demand in the economy

2. A. INCREASING THE INTEREST RATE

B. DECREASING THE MONETARY SUPPLY

C. INCREASING THE RESERVE REQUIREMENT

- Central Bank will increase the interest rate and decrease the monetary supply along with increase the Reserve requirement which will be controlling the on the monetary flow in the economy.