BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -An unwanted side effect of a contractionary monetary policy is a rise in unemployment. The economic slowdown and lower production cause companies to hire fewer employees. Therefore, unemployment in the economy increases.

Detailed explanation-2: -Note that the goal of contractionary monetary policy is to decrease the rate of demand for goods and services, not to stop it. So, higher interest rates through contractionary policy can be used to dampen inflation and move the economy back to the price stability component of the dual mandate.

Detailed explanation-3: -Central banks use contractionary monetary policy to reduce inflation. They reduce the money supply by restricting the volume of money banks can lend. The banks charge a higher interest rate, making loans more expensive. Fewer businesses and individuals borrow, slowing growth.

Detailed explanation-4: -Contractionary monetary policy is a macroeconomic tool that a central bank-in the US, that’s the Federal Reserve-uses to reduce inflation. The goal is to slow the pace of the economy by reducing the money supply, or the amount of cash and readily cashable funds circulating throughout the nation.

Detailed explanation-5: -If inflation heats up, raising interest rates or restricting the money supply are both contractionary monetary policies designed to lower inflation.