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).
More Monetary Policy MCQs
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- Q7The Central Bank significantly lowers its benchmark discount rate (the rate it charges commercial banks to borrow money). What is the…
- Q8The Central Bank increases the 'Cash Reserve Ratio', requiring commercial banks to keep 20% of their deposits locked in vaults instead of…
