Sapling Learning Clasly the actions descrbed below as examples of expansionary o

Question

Sapling Learning Clasly the actions descrbed below as examples of expansionary or contractionary (restictive) monetary policy Expansionary monetary easy money policy Contractionary or restrictive monetary policy (tight money policy) discount rate.percentage of deposits that banks bonds on the open market. are required to keep in vaults. The Federal Reserve purchasing A central bank reducing the bonds on the open market rate of interest that it charges to commercial banks on loans Hint O Prevous Give Up & View 80lden e Check Answer 0 Next Ent-

Explanation / Answer

The answers are in sequence from left to right:

1. Expansionary

Reason: A decrease in discount rate will increase the credit creation capacity of the banks thereby increasing the money supply in the economy.

2. Contractionary

Reason: As the banks are required to keep more deposits in the vaults, the credit creation capacity if the banks decreases thereby reducing money supply in the economy.

3. Contractionary

Reason: Selling of bonds by Fed will directly reduce money supply as bank and non-bank public purchases these bonds with domestic currency.

4. Expansionary

Reason: Purchasing of bonds by Fed will leave more money with the bank and non-bank public thereby increasing the overall money supply in the economy.

5. Expansionary

Reason: Reducing the interest rate charged to commercial banks, the credit creation capacity of the banks increases thereby increasing the money supply in the economy.

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