If a central bank wants to implement a contractionary policy that decreases real GDP, it conducts an open market operation by _______ securities.Bank reserves _______ and the supply of loanable funds _______.The quantity of money _______.

Question

Quizplus · Accepted Answer

When a central bank sells securities in an open market operation, it effectively removes money from the banking system, leading to a decrease in bank reserves. This reduction in reserves means banks have less money to lend out, which decreases the supply of loanable funds. Consequently, the overall quantity of money in the economy decreases, aligning with the goals of a contractionary monetary policy to reduce real GDP.

If a Central Bank Wants to Implement a Contractionary Policy