When the fed finds it necessary to slow down the economy it tightens monetary policy by:______.

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28-07-2022
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When the fed finds it necessary to slow down the economy it tightens monetary policy by:______.

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tutorconsortium206 tutorconsortium206 · Answer 1 · 2022-08-04T10:25:18+02:00

When the fed finds it necessary to slow down the economy it tightens monetary policy by raising short-term interest rates through policy changes to the discount rate and federal funds rate.

Tight Monetary Policy: What Is It?

A central bank, such as the Federal Reserve, may adopt a tight, or contractionary, monetary policy in order to tame hot economic growth, restrain expenditure in an economy that is perceived to be expanding too quickly, or slow inflation when it is increasing too quickly.

By increasing short-term interest rates through policy changes to the discount rate and federal funds rate, the central bank tightens monetary policy or makes money scarce. Raising interest rates makes borrowing more expensive and, therefore, less appealing. Selling assets on the central bank's balance sheet to the market through open market operations is another way to conduct strict monetary policy (OMO).

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