In a local newspaper, Rasa reads that stock prices in Lithuania are falling and unemployment is high
♥ 0 |
In a local newspaper, Rasa reads that stock prices in Lithuania are falling and unemployment is high and consumption is slowing. Would she classify monetary policy as tight or easy?
|
Here is a tip:
A strict monetary policy is related to higher interest rates and an easy monetary policy is related to lower interest rates.
Explanation
When the central bank undertakes an easy monetary policy, it reduces the federal funds rate to increase economic activity.
When the federal funds are lowered, the real interest rate goes down. Consequently, stock prices increase.
Due to a lower real rate of interest, asset prices go up, which increases the value of resources with individuals. As a result, their spending on consumption and durables increases.
In the low-interest-rate environment, business investments become cheaper. Consequently, business investments increase. This increases employment opportunities.
Verified Answer
In this case, the monetary policy will be an easy monetary policy.
The Best Research Paper Writing Service
Would you want to pay someone to write your paper professionally from scratch? 100% Original and 0% AI Content!.