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Explain the difference between expansionary and contractionary monetary policy.

Explain the difference between expansionary and contractionary monetary policy.

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Expert Solution

the difference between expansionary and contractionary monetary policy.:

1) In expansionary monetary policy, the Fed tries to increase the moeny supply through buying treasury bonds under open market operations, while contractionary monetary policy  tries to decrease the moeny supply through selling treasury bonds under open market operations.

2) In expansionary monetary policy, fed tries to cut interest rates by lowering discount rates to encourage economic growth while contractionary monetary policy raises the interest rates to lower inflation.

3) In expansionary monetary policy, the Fed tries to increase the moeny supply through lowering reserve requirements , while contractionary monetary policy  tries to decrease the moeny supply through increasing reserve requirements.

4) Expansionary monetary policy is for the higher demand in economy while contractionary monetary policy does opposite.

the above are answer.

Rahul Sunny answered 2 years ago
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