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

Question

Quizplus · Accepted Answer

Contractionary monetary policy involves the Federal Reserve taking actions to decrease the money supply in order to decrease aggregate demand and slow down inflation. By decreasing the money supply, it becomes more expensive for individuals and businesses to borrow money, leading to decreased consumption and investment. This ultimately results in a decrease in aggregate demand, helping to control inflation.

Contractionary Monetary Policy Involves Actions That