In the real world, contractionary monetary policy would be used to

Question

Quizplus · Accepted Answer

Contractionary monetary policy aims to decrease the money supply and raise interest rates to reduce the level of inflation. This is done by selling government securities, raising reserve requirements for banks, and increasing the discount rate at which banks borrow from the central bank. It would not be used to combat a recession as it would further decrease the money supply and lead to further economic contraction. Similarly, it would not be used to increase nominal GDP or increase long-run aggregate supply.

In the Real World, Contractionary Monetary Policy Would Be Used