Lower interest rates are part of tight money policy.

Question 40 options:

True

False

False

Explanation:

Monetary policy is a tool of the Federal Reserve or Central Bank which influences the price of money, the quantity of money and the use of money to achieve certain macroeconomic objectives of stability in general price level, long term stability in interest rate, full employment, economic growth e. t. c.

It is important to note that the price of money is the interest rate and if the policy target of the Federal Reserve or Central Bank is the interest rate, this

it does by influencing the discount rate.

When the Federal Reserve or Central Bank observes that there is too much money in circulation, it can raise the interest rate through the discount rate to mop up the excess liquidity, that is what is called tight monetary policy

On the other hand when the economy is experiencing deflation characterized by low purchasing power, the Federal Reserve or Central Bank can decide to inject liquidity into the system, the policy target can be interest rate, in which case it will lower the interest rate. this is what we call tight monetary policy.

It is important to note that the interest rate can be influenced indirectly by the Federal Reserve or Central Bank through the setting of the discount rate.

Therefore any policy by the Federal Reserve or Central Bank whose impact lowers the interest rate is an expansionary monetary policy and not a tight monetary policy.

the answer is false

Explanation:

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