Final answer:
The correct answer is option 2. The two basic types of monetary policies are easy money policy (expansionary) and tight money policy (contractionary). Easy money policy increases money supply and lowers interest rates to boost the economy, while tight money policy decreases money supply and raises interest rates to control inflation. The correct option for the student's question is easy money policy and tight money policy.
Step-by-step explanation:
The two basic types of monetary policies are the expansionary monetary policy, often referred to as easy money policy, and contractionary monetary policy, also known as tight money policy. An easy money policy is implemented to stimulate economic growth by increasing the money supply and lowering interest rates, which encourages borrowing and investment. Conversely, a tight money policy aims to curb inflation by reducing the money supply and raising interest rates, making borrowing more expensive and slowing down spending. The appropriate response to the student’s question about the two types of monetary policies is easy money policy and tight money policy.
Exploring the current U.S. monetary policy can provide insights into whether it's an easy or tight policy. One would need to research current interest rates, analyze economic indicators like inflation and unemployment, and consider the Federal Reserve's recent actions and statements. For instance, if interest rates are being lowered and the Federal Reserve is engaging in practices like quantitative easing, it would suggest an easy money policy. This type would typically be employed during economic downturns to encourage spending and investment. In contrast, a tight money policy would be indicated by rising interest rates and measures to reduce the money supply, often utilized when the economy is overheating, and there's a need to combat inflation.