Answer to Question #260776 in Economics for Peyaa ❣️

Question

List the different types of contractionary monetary policies and discuss the effects that lead to change in money supply when each of those actions are taken (6)

Answer 1

Contractionary monetary policy is a strategy used by a nation’s central bank during booming growth periods to slow down the economy and control rising inflation.

The Federal Reserve uses three main contractionary monetary tools: increasing interest rates (to curb demand and reduce the money supply), increasing banks’ reserve requirement, and selling government securities.

The primary purpose of contractionary monetary policy is to make it harder for companies and consumers to borrow and spend money and, in turn, halt inflation.