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What does it mean by contract the money supply?
It means to decrease, or lower, the money supply. EXAMPLE: The feds sold treasury bonds and bills in order to contract (decrease) money supply.
How can the Fed decrease the money supply?
The Federal Reserve can decrease the money supply by selling government securities, increasing the reserve requirements for banks, or raising the discount rate.
If the fed increases the money supply what will happen to interest rates?
when money supply is increased, interest rates decrease
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.
What is the solution to control inflation in an economy?
Decreasing the money supply. Monetary policies are concerned with the increase or decrease of the money supply.
What does it mean by contract the money supply?
It means to decrease, or lower, the money supply. EXAMPLE: The feds sold treasury bonds and bills in order to contract (decrease) money supply.
How can the Fed decrease the money supply?
The Federal Reserve can decrease the money supply by selling government securities, increasing the reserve requirements for banks, or raising the discount rate.
If the fed increases the money supply what will happen to interest rates?
when money supply is increased, interest rates decrease
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.
What is a fiscal policy designed to do?
Increase or decrease the money supply
Tightening the money supply causes interest rates to do what?
Decrease
An increase in the money supply is likely to decrease?
the prime rate
What do the Fed do to the money supply to discourage bank loans?
decrease
What is the solution to control inflation in an economy?
Decreasing the money supply. Monetary policies are concerned with the increase or decrease of the money supply.
How do changes in the money supply impact interest rates in the economy?
Changes in the money supply can impact interest rates in the economy by influencing the supply and demand for money. When the money supply increases, interest rates tend to decrease as there is more money available for borrowing, leading to lower borrowing costs. Conversely, a decrease in the money supply can lead to higher interest rates as borrowing becomes more expensive due to limited money supply.
Would cause a decrease in the supply of money?
raising of interest rates
What would fed do to interest rates if it wanted to fight inflation?
Use a monetary policy to decrease the money supply.
