Question

Which tool would the Federal Reserve use as part of a contractionary
monetary policy?
A. Buying treasury securities on the open market
B. Lowering the interest rate for bank reserves
C. Lowering the discount rate for short-term loans
D. Raising the reserve requirement on banks

Answer 1

Answer:

D is the answer.

Explanation:

I took the test.

Answer 2

Raising the reserve requirement on banks is the tool used as part of a contractionary economic policy,

What is the contractionary economic policy?

The Federal Reserve uses three predominant contractionary monetary gear: growing hobby rates, growing banks' reserve requirements, and selling authorities securities.

What occurs whilst reserve requirements are raised for banks?

Elevating the reserve requirement reduces the quantity of cash that banks have available to lend. because the supply of cash is decreased, banks can fee greater to lend it. That sends hobby costs up. converting the requirement is costly for banks.

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