Tightening monetary policy refers to ________.
A) higher real interest rates
B) higher nominal interest rates
C) lower real interest rates
D) lower nominal interest rates

Question

Quizplus · Accepted Answer

Tightening monetary policy refers to the central bank's actions to reduce the amount of money available in the economy, which leads to an increase in interest rates. Higher interest rates increase the cost of borrowing, which reduces spending and inflation. Real interest rates take into account inflation, so if inflation is held constant, higher nominal interest rates would result in higher real interest rates, which is a characteristic of tightening monetary policy.

Tightening Monetary Policy Refers to ________