PRC-3 · Chapter 19 · Question 10 of 17
The country is suffering from out-of-control inflation. The Central Bank initiates a 'contractionary' monetary policy to cool the economy. What specific action should it take?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Aggressively sell government bonds in the open market
Explanation
Selling bonds absorbs excess cash from commercial banks. With less cash, banks lend less, reducing the money supply and curbing inflationary spending.
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