Contractionary monetary policy by the Fed could include
A) lowering the discount rate.
B) decreasing government transfer payments.
C) decreasing reserve requirements.
D) selling government securities in the open market.

Question

Quizplus · Accepted Answer

Contractionary monetary policy is used to reduce the money supply and increase interest rates. Selling government securities in the open market is a tool the Fed can use to decrease the money supply by taking money out of circulation. Lowering the discount rate (A) would encourage borrowing and increase the money supply, while decreasing reserve requirements (C) would also increase the money supply. Decreasing government transfer payments (B) is a fiscal policy tool, not a monetary policy tool.

Contractionary Monetary Policy by the Fed Could Include