Contractionary monetary policy is achieved by:

Question

Quizplus · Accepted Answer

Contractionary monetary policy aims to decrease aggregate demand and control inflation. To achieve this, the central bank decreases the amount of money available in the market by lowering the amount of bank reserves. This results in an increase in interest rates, making borrowing more expensive and reducing spending. Therefore, to reduce the money supply and increase interest rates, the federal funds rate should be raised along with a decrease in bank reserves. Option B corresponds to this policy.

Contractionary Monetary Policy Is Achieved By