Question

Which of the following statements correctly describes the effect of monetary policy on the monetary base?

1) Tightening policy contracts the monetary base.
2) Loosening policy expands the monetary base.
3) Another tightening contracts the monetary base.
4) Cannot be determined from the given information.

Answer 1

Tightening policy contracts the monetary base and loosening policy expands the monetary base.

Step-by-step explanation:

A tightening monetary policy, also known as a contractionary monetary policy, contracts the monetary base. On the other hand, a loosening monetary policy, also known as an expansionary monetary policy, expands the monetary base. Therefore, the correct statements are: 1) Tightening policy contracts the monetary base and 2) Loosening policy expands the monetary base.