Contractionary monetary policy is enacted to halt exceptionally high inflation rates or normalize the effects of expansionary policy. Tightening the money supply discourages business expansion and consumer spending and negatively impacts exporters, which can reduce aggregate demand.

One popular method of controlling inflation is through a contractionary monetary policy. The goal of a contractionary policy is to reduce the money supply within an economy by decreasing bond prices and increasing interest rates.

Current state of US monetary policy In August 2020, after undershooting its 2% inflation target for years, the Fed announced it would be allowing inflation to temporarily rise higher, in order to target an average of 2% over the longer term.

The Federal Reserve’s three instruments of monetary policy are open market operations, the discount rate and reserve requirements. Open market operations involve the buying and selling of government securities.

Central banks have four main monetary policy tools: the reserve requirement, open market operations, the discount rate, and interest on reserves.

Your answer would be, The following example of a Monetary Policy is, Letter Choice, (C), The Government lowers interest rates to make it cheaper for people, and businesses to borrow money.

The three key actions by the Fed to expand the economy include a decreased discount rate, buying government securities, and lowered reserve ratio. One of the greatest examples of expansionary monetary policy happened in the 1980s.

Monetary policy refers to the steps taken by a country’s central bank to control the money supply for economic stability. For example, policymakers manipulate money circulation for increasing employment, GDP, price stability by using tools such as interest rates, reserves, bonds, etc.

Monetary policy has two basic goals: to promote “maximum” sustainable output and employment and to promote “stable” prices. These goals are prescribed in a 1977 amendment to the Federal Reserve Act.

The Federal Reserve works to promote a strong U.S. economy. Specifically, the Congress has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates.

Monetary Policy is concerned with government’s attempts to provide a more stable economy by regulating the rate of growth of the money supply. Thus, the main objective of monetary policy is to control cost and availability of money.

The three objectives of monetary policy are controlling inflation, managing employment levels, and maintaining long-term interest rates. The Fed implements monetary policy through open market operations, reserve requirements, discount rates, the federal funds rate, and inflation targeting.

Since cash and most checking accounts don’t pay much interest, but bonds do, money demand varies negatively with interest rates. That means the demand for money goes down when interest rates rise, and it goes up when interest rates fall.

The corporate tax rate. The corporate tax rate is controlled by Congress, not the Fed. Therefore it is not a tool of monetary policy.

Congress has delegated responsibility for monetary policy to the Federal Reserve (the Fed), the nation’s central bank, but retains oversight responsibilities for ensuring that the Fed is adhering to its statutory mandate of “maximum employment, stable prices, and moderate long-term interest rates.” To meet its price …

A liquidity trap is a situation in which monetary policy becomes ineffective because the policymaker’s attempt to influence nominal interest rates in the economy by altering the nominal money supply is frustrated by pri- vate agents’ willingness to accept any amount of money at the current interest rate.

Monetary policy impacts the money supply in an economy, which influences interest rates and the inflation rate. It also impacts business expansion, net exports, employment, the cost of debt, and the relative cost of consumption versus saving—all of which directly or indirectly impact aggregate demand.