The Pros And Cons Of Expansionary Monetary Policy
The economy has two categories, …show more content…
This ensures consumers received sufficient information, fair treatment from the banking industry and supports the prevention of a rise in inflation or recession.
Expansionary or Contractionary policy
The Expansionary Monetary Policy is a policy, the Federal Reserve can implement to trying to stimulate the growth of the nation’s economy. When an expansionary policy is implemented it can increase the nation’s money supply by lowering interest rates making it cheaper to borrow money. They can enact this policy in an attempt to slow down or stop a decline in the economic growth. There is a risk of enacting this policy, by creating easier access to money it can lead to inflation.
A Contractionary Monetary Policy in contrast, is a policy, the Federal Reserve would implement to slow the growth of the economy to prevent inflation. Their goal would be to slow the growth of the economy without putting the economy into a recession. To enact a Contractionary Policy the Federal Reserve by raising interest rates, decrease the money supply. Because of the inherent risk The Federal Reserve would only implement this policy if the core inflation rate was above the 2% target inflation rate.