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PRC-3 · Chapter 19 · Question 2 of 17

To combat soaring, out-of-control inflation, the central bank initiates a 'contractionary' monetary policy. Which combination of actions represents a contractionary approach?

Test yourself: pick an answer

Reveal answer & explanation

Correct answer: A) Raising interest rates and selling government bonds to reduce money supply

Explanation

To cool down an overheating, inflationary economy, the central bank raises interest rates (making borrowing expensive) and sells bonds (absorbing excess cash from the banking system).

All 17 questions in Chapter 19Monetary Policy MCQs with answers

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