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Deflation
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∙ 14y ago
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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.
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.
An increase in the money supply is likely to decrease?
the prime rate
Tightening the money supply causes interest rates to do what?
Decrease
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.
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 do the Fed do to the money supply to discourage bank loans?
decrease
Tightening the money supply causes interest rates to do what?
Decrease
What is a fiscal policy designed to do?
Increase or decrease the money supply
An increase in the money supply is likely to decrease?
the prime 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.
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.
If there is a decrease in the money supply that causes prices to fall and leads to deflation what happens to money?
It gains purchasing power.
Would the money supply increase or decrease if the required reserve ratio was lowered from 20 percent to 10 percent?
That would be decrease
