Monetary policy designed to slow down economic activity is called _____ monetary policy.A.expansionaryB.inflationaryC.contractionaryD.deflationary
Question
Monetary policy designed to slow down economic activity is called _____ monetary policy.
A. expansionary
B. inflationary
C. contractionary
D. deflationary
Solution
The correct answer is C. contractionary.
Explanation:
- Definition of Terms:
- Expansionary Monetary Policy: Aims to increase the money supply to stimulate economic growth.
- Inflationary Policy: Refers to actions that contribute to inflation but does not specifically denote slowing down economic activity.
- Contractionary Monetary Policy: Aims to reduce the money supply and curb inflation, thereby slowing down economic activity.
- Deflationary Policy: Similar to contractionary, it aims to reduce inflation but is less commonly used as a formal term in monetary policy discussions.
By choosing contractionary monetary policy, central banks attempt to reduce spending, slow down growth, and control inflation.
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