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Which of the following options contains only examples of expansionary monetary policy actions?A.Open-Market Purchase; Decrease policy rate; Decrease minimum reserve ratio; Increase interest rate on reserve accountB.Open-Market Purchase; Increase policy rate; Decrease minimum reserve ratio; Decrease interest rate on reserve accountC.Open-Market Sales; Decrease policy rate; Decrease minimum reserve ratio; Decrease interest rate on reserve accountD.Open-Market Purchase; Decrease policy rate; Decrease minimum reserve ratio; Decrease interest rate on reserve account

Question

Which of the following options contains only examples of expansionary monetary policy actions?A.Open-Market Purchase; Decrease policy rate; Decrease minimum reserve ratio; Increase interest rate on reserve accountB.Open-Market Purchase; Increase policy rate; Decrease minimum reserve ratio; Decrease interest rate on reserve accountC.Open-Market Sales; Decrease policy rate; Decrease minimum reserve ratio; Decrease interest rate on reserve accountD.Open-Market Purchase; Decrease policy rate; Decrease minimum reserve ratio; Decrease interest rate on reserve account

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Solution

The correct option is:

D. Open-Market Purchase; Decrease policy rate; Decrease minimum reserve ratio; Decrease interest rate on reserve account

Explanation:

Expansionary monetary policy is a form of economic policy used by central banks to stimulate the economy when it slows down. It involves measures designed to increase the money supply and lower interest rates.

  1. Open-Market Purchase: When a central bank buys government securities in the open market, it increases the reserves of commercial banks, which can then lend more, increasing the money supply.

  2. Decrease policy rate: Lowering the policy rate (or discount rate) makes borrowing cheaper, encouraging banks to lend more, which increases the money supply.

  3. Decrease minimum reserve ratio: Lowering the reserve requirement allows banks to lend out a larger portion of their deposits, which increases the money supply.

  4. Decrease interest rate on reserve account: Lowering the interest rate paid on reserves held by banks at the central bank can encourage banks to lend more of their reserves, increasing the money supply.

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Similar Questions

Which action taken by a central bank would reflect expansionary monetary policy?A.Raising the interest that it pays to banks on the balance of their reservesB.Selling treasury securities to banks to reduce the money supplyC.Lowering the discount rate to provide more loans to banksD.Raising reserve requirements for all banks

Expansionary monetary policy involves:Question 23Select one:a.Decreasing money supply and increasing interest ratesb.Increasing money supply and decreasing interest ratesc.Decreasing both money supply and government expendituresd.Decreasing both the government spending and taxese.Decreasing both interest rates and taxes.

Which economic tool would most likely be used as part of an expansionary monetary policy?A.Reducing the discount rateB.Increasing interest on reservesC.Selling treasury securitiesD.Raising the reserve requirement

Suppose the Federal Reserve plans to conduct expansionary monetary policy during a recession. Which of the following is a policy that would promote this decision?Multiple choice question.Decrease personal income taxesIncrease personal income taxesDecrease the interest rate paid on reservesIncrease the interest rate paid on reserves

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