Restrictive monetary policy is associated with which of the following actions?
A) A decrease in the discount rate
B) An increase in excess reserves
C) A decrease in the federal funds rate
D) The purchase of government securities
E) An increase in the reserve requirement

Question

Quizplus · Accepted Answer

Restrictive monetary policy involves decreasing the money supply in the economy, and increasing the reserve requirement for banks is one method of achieving this. This forces banks to hold more reserves, which reduces the amount of money they can loan out, ultimately decreasing the money supply. The other options listed are associated with expansionary monetary policy, which involves increasing the money supply to stimulate economic growth.

Restrictive Monetary Policy Is Associated with Which of the Following