I know what a monetary policy is but what is a tight monetary policy?

Question

I have to describe the 4 key tools of the monetary policy which i have here in my book but the question says to describe how they are used to implement a tight monetary policy.

a monetary policy is where adjustments are made to the quantity of money but whats the difference for a tight monetary policy?

thanks

Answer 1

Tight monetary policy means alter your tools to reduce the money supply and also raise rates to slow down the amount of spending and economic activity. This policy is used when the Fed thinks the economy is heating up and inflation is "waiting". You should have been give tools to consider such as the required reserve ratio, the discount rate, the fed funds rate and perhaps the buying and selling of U.S. government securities? I don't like doing peoples homework, so go back and check your notes and resubmit a question if you still want more "hints". Hope this helps.

Answer 2

Tight monetary policy is where Our Fed raises the reserve requirements meaning less money is available to loan out