Answer to Question #280170 in Macroeconomics for Salvation

Question

Suppose the economy is experiencing inflation. What would be the

interpretation of how a restrictive monetary policy would address this problem?

Answer 1

The implementation of restrictive monetary policy would address this problem such that it will employ the ways in which the central bank will use in slowing down the economic growth.

The amount of money and credit lend by banks are cut down.

Credit cards, mortgages and loans are made more expensive in order to decrease the money supply in the economy.

The overall effect of this action is that demand is constricted and the level of inflation is lowered.