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26.24 Quiz Domestic
Question 1 of 10
Which scenario indicates that a contractionary monetary policy is needed?
A. Interest rates are increasing
B. The economy is growing rapidly
C. Investment has been slowing
OD. The money supply has increased recently

Verified Answer :

GinnyAnswer

Final answer:

A contractionary monetary policy involves decreasing the money supply and credit to raise interest rates, aiming to control inflation and moderate economic growth.


Explanation:

Contractionary monetary policy is needed when the central bank aims to decrease the money supply and credit in the economy, resulting in a rise in interest rates to discourage borrowing for investment and consumption, and shifting aggregate demand to the left. This policy is implemented to control inflation and cool down an overheated economy.


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