If Mary takes money from her savings account and buys a T-bond from Jody with that money, it's:
A. An example of expansionary monetary policy.
B. An example of contractionary monetary policy.
C. An example of neutral (neither expansionary nor contractionary) policy.
D. The same as the Fed buying bonds.
E. An expansionary fiscal policy.
I think I have it narrowed down between A or C, thoughts?
To determine the correct answer, let's understand the concepts of expansionary and contractionary monetary policy.
Expansionary monetary policy refers to measures taken by the central bank, such as reducing interest rates and increasing the money supply, to stimulate economic growth and increase aggregate demand. Contractionary monetary policy, on the other hand, involves actions that aim to reduce inflationary pressures and slow down economic growth by increasing interest rates and decreasing the money supply.
In the situation described, it is important to note that Mary is using her own savings account to buy a T-bond from Jody, not the central bank's actions. Therefore, the transaction between Mary and Jody is not directly related to monetary policy conducted by the central bank.
Based on this reasoning, we can safely rule out options A and B since they involve monetary policy actions. Additionally, option D, "The same as the Fed buying bonds," is incorrect because Mary, as an individual, is not the same entity as the Federal Reserve (Fed).
The remaining two options are C, "An example of neutral policy," and E, "An expansionary fiscal policy." We can disregard option E - expansionary fiscal policy refers to government spending and taxation, not an individual's financial decision.
As a result, the most appropriate answer is C: "An example of neutral (neither expansionary nor contractionary) policy." This is because the transaction between Mary and Jody does not directly impact overall economic conditions or monetary policy but rather represents a personal financial decision.