Monetary Policy

Question 1

what is monetary policy

Answer 1

when the government manages interest rates and the money supply

Question 2

what is contractionary monetary policy

Answer 2

when gov spending is decreased and interest rates increase

Question 3

what does contractionary monetary policy do

Answer 3

it decreases AD and combat rising inflation

Question 4

what does contractionary monetary policy do to taxes

Answer 4

increases tax, to decrease money to spend so AD decreases

Question 5

what does contractionary monetary policy do to interest rates

Answer 5

central banks increase interest rates in the short term to increase saving, this decreases AD

Question 6

what is a side effect of contractionary monetary policy

Answer 6

it increases unemployment as companies hire fewer employees, this decreases economic growth

Question 7

what is expansionary monetary policy

Answer 7

when the government increases government spending and decrease tax to increase AD and boost the economy.

Question 8

how does inflation affect expansionary monetary policy

Answer 8

by increasing inflation, the money supply increases