Contractionary monetary policy on the part of the Fed results in
A)an increase in the money supply,an increase in interest rates,and an increase in GDP.
B)a decrease in the money supply,an increase in interest rates,and a decrease in GDP.
C)an increase in the money supply,a decrease in interest rates,and an increase in GDP.
D)a decrease in the money supply,a decrease in interest rates,and a decrease in GDP.

Question

Quizplus · Accepted Answer

Contractionary monetary policy, also known as tightening, involves the Fed decreasing the money supply by selling government securities, raising reserve requirements, or increasing the discount rate. This decrease in the money supply results in increased interest rates, as borrowing becomes more expensive for banks and consumers. The higher interest rates lead to a decrease in borrowing and spending, which in turn leads to a decrease in GDP. Therefore, the correct answer is B) a decrease in the money supply, an increase in interest rates, and a decrease in GDP.

Contractionary Monetary Policy on the Part of the Fed Results