The purpose of contractionary monetary policy is to
A) alleviate recessions.
B) raise interest rates and restrict the availability of bank credit.
C) shift the expenditure line upward.
D) increase investment spending.
E) decrease tax rates.

Question

Quizplus · Accepted Answer

Contractionary monetary policy is aimed at cooling down an overheating economy by reducing the money supply, which raises interest rates and reduces the availability of bank credit, which ultimately leads to lower aggregate demand and inflation. This policy is used when the economy is growing too quickly and is at risk of overheating.

The Purpose of Contractionary Monetary Policy Is to