A restrictive monetary policy involves reducing money supply growth, which reflects the federal fund rates and other interest rates. The policy is intended to discourage more borrowing and spending by businesses and households, which can reduce economic growth. Such a strategy is intended to reduce excessive demand for products and services that could demand -pull inflation.

1. Why do financial market participants closely monitor money supply movements?
2. Explain how the Fed's monetary policy affect the process of equity securities.
3. Why might the Fed have difficulty controlling the economy in a manner desired? Be specific.
4. When does the central bank use a stimulative monetary policy, and when does it use a restrictive monetary policy? What is a criticism of a stimulative monetary policy? What is the risk of using a monetary policy that is too restrictive?