Answer to Question #179748 in Macroeconomics for SHADY

Question

Explain the difference between monetary loosening and monetary tightening. According to the statement, the MPC reduced the monetary policy rate by 100 basis points. Does this constitute a monetary loosening or monetary tightening? Explain.

Answer 1

A loose monetary policy is a policy that lowers interest rates and stimulates borrowing while tightening monetary policy is a policy that raises interest rates and reduces borrowing in an economy.

If the MPC reduces the monetary policy by 100 points then it is a tightening policy because it is reducing spending in the economy.