Which of the following is an example of a contractionary monetary policy?
A)Transfer payments to poor families are reduced.
B)The Fed buys government securities in the open market.
C)The discount rate is raised.
D)The required reserve ratio is lowered.
E)Anything the Fed does to shift the money supply to the right is a contractionary policy.

Question

Quizplus · Accepted Answer

When the discount rate is raised, it increases the cost of borrowing for banks. Therefore, banks are less willing to lend out money which leads to a decrease in the money supply. This, in turn, reduces spending and slows down the economy, making it an example of a contractionary monetary policy.

Which of the Following Is an Example of a Contractionary