BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -In order to reduce the money supply, the central bank can opt to increase the cost of short-term debt by increasing the short-term interest rate. The increase in interest rates will also affect consumers and businesses in the economy as commercial banks will raise the interest rates they charge their clients.

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: -A contractionary policy is a tool used to reduce government spending or the rate of monetary expansion by a central bank to combat rising inflation. The main contractionary policies employed by the United States include raising interest rates, increasing bank reserve requirements, and selling government securities.

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: -In this framework, a central bank estimates and makes public a projected, or “target, ” inflation rate and then attempts to steer actual inflation toward that target, using such tools as interest rate changes.