Answer to Question #76936 in Economics of Enterprise for natalie

Question

Explain when the FED would use a contractionary monetary policy and an expansionary monetary policy, and what the overall result would/could be.

Answer 1

Contractionary monetary policy is when the economic growth lowers down to prevent inflation. The pursue of FED is to control inflation of the economy rate of 2%.However the FED wants the economy to grow rapidly and not shrinking.

Expansionary monetary policy is when the central bank uses its tool to growth of the economy. Thus, the increase of the money supply lowers interest rates. FED is commonly used in open market operation.