Question

Lowering the fractional reserve requirement ratio is an example of a. contractionary fiscal policy. b. expansionary monetary policy. c. expansionary fiscal policy. d. none of the above.

   Lowering the fractional reserve requirement ratio is an example of
a. contractionary fiscal policy.
b. expansionary monetary policy.
c. expansionary fiscal policy.
d. none of the above.

Introduction to agricultural economics

Introduction to agricultural economics

John B. Penson,… 7th Edition

Chapter 13, Problem 15

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The fractional reserve requirement ratio is the portion of depositors' balances that banks must have on hand as cash. This ratio is set by the central bank and determines how much money banks can lend out. Show more…

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Lowering the fractional reserve requirement ratio is an example of a. contractionary fiscal policy. b. expansionary monetary policy. c. expansionary fiscal policy. d. none of the above.

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Key Concepts

Monetary Policy

Monetary policy refers to the process by which a central bank or monetary authority controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency. Tools used include adjusting interest rates, buying or selling government bonds, and manipulating reserve requirements. It is a key mechanism for managing economic activity and inflation in an economy.

Fractional Reserve Requirement

The fractional reserve requirement is a regulation set by the central bank that requires commercial banks to hold a fraction of their deposit liabilities in reserve. By lowering this requirement, banks can lend more of their deposits, thereby increasing the money supply in the economy. This action is a typical tool used in expansionary monetary policy to stimulate economic growth.

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