Question

"Economy Contracting, Experts Report"

• "Fed Announces Decrease in Interest Rates"
• "Banks Request Lowered Reserve Ratio"
.
What monetary policy strategy of the Federal Reserve do these headlines
reflect?
TO
O
A. Restricting overnight loans in order to regulate banks
O
B. Lowering taxes to stimulate the economy
DEO
O
C. Increasing the money supply to spur economic growth
O
D. Expanding government spending to give more money to
consumers

Answer 1

Increasing the money supply to spur economic growth is the monetary policy strategy of the Federal Reserve do these headlines reflect.

Option C

Explanation:

The Federal Reserve (Fed) is responsible for many functions which all sum up to stabilizing the economy. Fed stabilizes the economy by increasing the supply of money when the economy is deteriorating which is done by lowering interest rates and by making sure consumers have more money.

When consumers earn more money they feel wealthier and this stimulates their purchasing power positively; they will spent more. More spending by consumers increases factory productions, sales, and the labour demand and in turn raises the demand of capital goods.