Question

When banks are very cautious about lending money and therefore hold excess reserves, then: Question 29 options: it hinders contractionary monetary policy. expansionary monetary policy remains unaffected. contractionary monetary policy remains unaffected. it hinders expansionary monetary policy.

Answer 1

The correct answer is the third option: Contractionary monetary policy remains unaffected.

Step-by-step explanation:

To begin with, in the field of macroeconomics the "monetary policy" refers to the decisions that proper authority takes in order to adjust the amount of money that is in circulation. Therefore that it exists two types of monetary policy, the contractionary and the expansionary one. The first policy focus on the fact of reducing the amount of money that is already in circulation for the people and that is why that if the banks decide not to lend money then the contractionary policy will not be affected due to the fact that the action taken by the bank is what the authoraty wants.