Which of the following is an example of a contractionary monetary policy?
A) a reduction in the amount of transfer payments made to poor families
B) a purchase of U.S. government securities in the open market
C) an increase in the discount rate
D) a decrease in the required reserve ratio
E) an increase in the tax rate

Question

Quizplus · Accepted Answer

An increase in the discount rate makes it more expensive for banks to borrow from the Federal Reserve, therefore reducing the amount of money in circulation and making it harder for consumers and businesses to get credit, leading to a contraction of the economy.

Which of the Following Is an Example of a Contractionary