Question

Classify each action as contractionary or expansionary monetary policy.

Increasing the discount rate

Reducing the required reserve ratio

Reducing the federal funds rate

selling government securities

Answer 1

Selling government securities, and reducing the required reserve ratio. Contraction monetary policy would have the other two.

Answer 2

Contractionary policies are done to avoid inflation and slow growth. The strategy is to decrease the money supply so they do the following statements:

Increasing the discount rates, Reducing the federal funds rate and selling government securities

Expansionary policies expand to avoid inflation, an example is Reducing the required reserve ratio. The strategy is to lend its reserves to banks so it can reach the people and the people would spend their money so there would be circulation that would happen.