Which monetary policy is designed to slow the money supply in order to reduce inflation?

Which monetary policy is designed to slow the money supply in order to reduce inflation?

• A. Easy-money policy
• B. Monetary policy
• C. Tight-money policy
• D. Deficit spending

Answer: (C)

Contractionary monetary policy is designed to slow the money supply to curb inflation. By tightening the money supply, the central bank raises interest rates and makes borrowing more expensive, which reduces consumer spending and business investment. With less spending, overall demand eases, helping to slow price rises. Tools include selling government securities, raising reserve requirements, and increasing the policy rate. Easy-money policy, in contrast, expands the money supply to stimulate growth, while deficit spending is a fiscal tool, not monetary policy.

Contractionary monetary policy is designed to slow the money supply to curb inflation. By tightening the money supply, the central bank raises interest rates and makes borrowing more expensive, which reduces consumer spending and business investment. With less spending, overall demand eases, helping to slow price rises. Tools include selling government securities, raising reserve requirements, and increasing the policy rate. Easy-money policy, in contrast, expands the money supply to stimulate growth, while deficit spending is a fiscal tool, not monetary policy.