Explain the difference between expansionary monetary policy and contractionary monetary policy. Give a detailed explanation including examples. Give work cited if needed. Please post an original response.© BrainMass Inc. brainmass.com October 9, 2019, 11:31 pm ad1c9bdddf
Expansionary and contractionary monetary policies are different. In an expansionary monetary policy, the Fed keeps the interest rates low in order to boost consumer spending and grow the economy. This is what is happening right now. There is little fear of inflation and so the Fed is keeping interest rates close to 0% so that the economy can grow rapidly.
In contrast a contractionary monetary policy is when the Fed tightens up and raises the interest rate because it fears that inflation is going to increase. If there is fear of inflation then the Fed raises the interest rates to curb spending and stop the economic growth.
Expansionary Monetary Policy
In the United States, when the Federal Open Market Committee wishes to increase the money supply, it can do a combination of three things:
1. Purchase securities on the open market, known as Open Market Operations
2. Lower the Federal Discount Rate
3. Lower Reserve Requirements
These all directly ...
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