The purpose of a contractionary monetary policy is to:
A) increase investment spending.
B) lower interest rates and shift the aggregate demand curve to the right.
C) raise interest rates and shift the aggregate demand curve to the left.
D) lower interest rates, increase credit availability and increase aggregate demand.

Question

Quizplus · Accepted Answer

Contractionary monetary policy aims to reduce inflation and slow down an overheating economy by raising interest rates. This makes borrowing more expensive, which can decrease spending and investment, leading to a shift of the aggregate demand curve to the left.

The Purpose of a Contractionary Monetary Policy Is To