Question

which of the following is associated with contractionary monetary policy? a.) increasing the reserve requirement b.) increasing taxes c.) buying federal treasury bonds d.) lowering the discount rate

Answer 1

Increasing taxes is associated with contractionary monetary policy. The correct option is B.

What causes contractionary monetary policy?

A contractionary monetary policy is one that is designed to slow the rate of monetary expansion in order to combat inflation. Inflationary pressures are regarded as the primary indicator of an overheated economy, which can occur as a result of prolonged periods of economic growth.

The contractionary monetary policy seeks to slow or even stop economic growth in order to keep inflation at bay. It stifles growth primarily by raising interest rates and shrinking the money supply. Higher interest rates cause consumers to cut back on spending, particularly when using credit cards.

Thus, the ideal selection is option B.

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