0
How does the government control interest rates and the money supply?
Wiki User
∙ 8y agoWant this question answered?
Be notified when an answer is posted
Add your answer:
Earn +20 pts
The control of the money supply is achieved through?
The control of money supply can be achieved with two main concepts. One is to lower interest rates and the other is to control spending.
Efforts by the federal reserve system to control the money supply and interest rates are known as what?
Monetary Policy
If the fed increases the money supply what will happen to interest rates?
when money supply is increased, interest rates decrease
Why would the federal reserve enact a tight money policy?
monetary policy is the use of money supply and interest rate to control the supply of money in an economy. Usually, the main use of monetary policy is to control inflation. e.g. when interest rate is high, people don't spend as much (and some may even save more), reducing the pressure on demand/supply, reducing the price level i.e. decreased inflation. It can work on reverse if the interest rate is put up (if inflation is dangerously low - close to point of deflation.) Alternatively, government can sell/buy assets so as to withdraw/inject more money into an economy.
What effect does an increase in the money supply have on inflation?
An increase in the money supply shifts the money supply curve to the right. If you look on your graph, you will see that an increase in money supply will cause the interest rate to decrease. Here's why: Fed increases money supply-->excess supply of money at the current interest rate -->people buy bonds to get rid of their excess money-->increase in the prices of bonds --> decrease in the interest rate.
The control of the money supply is achieved through?
The control of money supply can be achieved with two main concepts. One is to lower interest rates and the other is to control spending.
Why the government attempt to target changes in the money supply or changes in interest rate but not both?
answer
Efforts by the federal reserve system to control the money supply and interest rates are known as what?
Monetary Policy
If the fed increases the money supply what will happen to interest rates?
when money supply is increased, interest rates decrease
What is the control of the supply of money by adjusting the interest rate it charges the borrowers by the Federal Reserve?
discount rate👍🏽
Why would the federal reserve enact a tight money policy?
monetary policy is the use of money supply and interest rate to control the supply of money in an economy. Usually, the main use of monetary policy is to control inflation. e.g. when interest rate is high, people don't spend as much (and some may even save more), reducing the pressure on demand/supply, reducing the price level i.e. decreased inflation. It can work on reverse if the interest rate is put up (if inflation is dangerously low - close to point of deflation.) Alternatively, government can sell/buy assets so as to withdraw/inject more money into an economy.
What government agency is responsible for the control of money supply?
The Treasury
What is the rate called where The Federal Reserve can control the supply of money by adjusting the interest rate it charges the borrowers.?
discount rate
What is a group of people who wanted the new government to have a lot of control over the economy and the money supply?
Democratic
What effect does an increase in the money supply have on inflation?
An increase in the money supply shifts the money supply curve to the right. If you look on your graph, you will see that an increase in money supply will cause the interest rate to decrease. Here's why: Fed increases money supply-->excess supply of money at the current interest rate -->people buy bonds to get rid of their excess money-->increase in the prices of bonds --> decrease in the interest rate.
How does the federal reserve buy and sell government securities?
This is called open market operations, they do this to increase the money supply, buy buying bonds or decrease the money supply by selling. They do this to control interest rates and inflation.
Why is money suppy a major determinant of interest rates?
Because: Real interest rate occurs when real money demand = money supply When money supply changes, the equilibrium interest rates changes as this equation shows.
