In which of the following situations is expansionary monetary policy most effective?
A)The Fed prints more currency.
B)The Fed raises the discount rate and the reserve requirement.
C)The Fed sells more securities.
D)Banks are willing to lend excess reserves.

Question

Quizplus · Accepted Answer

When banks are willing to lend excess reserves, it indicates an environment where they perceive that there are profitable opportunities to lend. By implementing an expansionary monetary policy, the Fed can increase the money supply and lower interest rates, which will encourage additional lending and investment, thereby further stimulating economic activity. This makes choice D the most effective situation for expansionary monetary policy.

Choice A (printing more currency) could lead to inflation, and may not be effective if people don't want to hold onto the additional currency. Choice B (raising the discount rate and reserve requirement) would be contractionary policy, and would not be helpful for this scenario. Choice C (selling more securities), while potentially reducing the money supply and increasing interest rates, may not stimulate additional lending and may not be as effective.

In Which of the Following Situations Is Expansionary Monetary Policy