ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Inflation can be controlled by a contractionary monetary policy is one common method of managing inflation. A contractionary policy aims to reduce the supply of money within an economy by lowering the prices of bonds and rising interest rates. Thus, consumption falls, prices fall and inflation slows down.

Detailed explanation-2: -Monetary policy has a strong influence over interest rates in the economy, including the lending and deposit rates faced by households and businesses. In turn, these interest rates influence economic activity, employment and inflation.

Detailed explanation-3: -Types of monetary policy There are two main kinds of monetary policy: contractionary and expansionary.

Detailed explanation-4: -Contractionary monetary policy is now a more popular method of controlling inflation. The goal of a contractionary policy is to reduce the money supply within an economy by increasing interest rates. 5 This helps slow economic growth by making credit more expensive, which reduces consumer and business spending.