Contractionary monetary policy involves:
A)actions that reduce the money supply in order to decrease aggregate demand.
B)actions that increase the money supply in order to decrease aggregate demand.
C)actions that reduce the money supply in order to increase aggregate demand.
D)actions that increase the money supply in order to increase aggregate demand.

Question

Quizplus · Accepted Answer

Contractionary monetary policy refers to the actions taken by the central bank to reduce the money supply in order to decrease aggregate demand. This is typically done by increasing the interest rate, which makes borrowing more expensive and reduces demand in the economy. By reducing the money supply, the central bank aims to decrease inflation and cool down an overheated economy.

Contractionary Monetary Policy Involves