ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Under this system, the central bank sells securities in the market when it wants to reduce the money supply in the market. It is done to increase interest rates. This policy is also known as the contractionary monetary policy.

Detailed explanation-2: -Open Market Operations and Interest Rates Under a contractionary policy, a central bank sells securities on the open market, which reduces the amount of money in circulation. Expansionary monetary policy entails the purchase of securities and an increase in the money supply.

Detailed explanation-3: -Contractionary monetary policy includes selling government bonds, increasing the reserve requirement, and increasing the federal funds interest rate.

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: -It is a macroeconomic tool used to combat rising inflation. The main contractionary policies employed by the United States government include raising interest rates, increasing bank reserve requirements, and selling government securities.