If a central bank wants to implement a contractionary policy that decreases real GDP, it will conduct an open market operation by securities. Bank reserves will and bank lending will _ leading to a _ in the quantity of money.

Question

Quizplus · Accepted Answer

When a central bank sells securities, it decreases bank reserves, leading to a decrease in bank lending and a decrease in the quantity of money, which is a contractionary policy.

If a Central Bank Wants to Implement a Contractionary Policy