Monetary policy homework question?

Monetary policy attempts to influence the availability of money and credit in the economy as well as interest rates by influencing bank reserves.

I. True J. False

Monetary policy homework question?heart rate monitor

True

Monetary policy homework question? loan

The answer is true. Basically what the Fed does when creating monetary policy is that it influences money supply so as to in turn affect the interest rate (which essentially is the price of money). If it wants to expand the economy i.e. increase growth and employment then it increases money supply reducing the value of the interest rate making it easier for people to borrow money and as a result increasing consumption and investment and expanding aggregate demand. If it wants to contract the economy i.e. reduce inflation it reduces money supply increasing the value of the interest rate and making it harder for people to borrow thus reducing consumption and investment and reducing aggregate demand.