The economic tool that would most likely be used as part of a contractionary monetary policy is C. Raising the reserve requirement.

Here's why:

A contractionary monetary policy is used by a central bank to decrease the supply of money in the economy in an effort to control inflation. This is typically done by increasing interest rates, which discourages borrowing and slows down economic activity.

A. Lowering interest on reserves would actually encourage banks to hold more reserves, which would increase the money supply, not decrease it. This is an expansionary policy tool, not a contractionary one.

B. Reducing the discount rate would make it cheaper for banks to borrow money from the central bank, which would increase the money supply, not decrease it. This is also an expansionary policy tool.

C. Raising the reserve requirement means that banks must hold more money in reserve and cannot lend out as much. This reduces the money supply, which is the goal of a contractionary policy.

D. Buying treasury securities is another expansionary policy tool. When the central bank buys these securities, it increases the money supply by putting more money into the economy. This is the opposite of what a contractionary policy aims to do.

Question

The economic tool that would most likely be used as part of a contractionary monetary policy is C. Raising the reserve requirement.

Here's why:

A contractionary monetary policy is used by a central bank to decrease the supply of money in the economy in an effort to control inflation. This is typically done by increasing interest rates, which discourages borrowing and slows down economic activity.

A. Lowering interest on reserves would actually encourage banks to hold more reserves, which would increase the money supply, not decrease it. This is an expansionary policy tool, not a contractionary one.

B. Reducing the discount rate would make it cheaper for banks to borrow money from the central bank, which would increase the money supply, not decrease it. This is also an expansionary policy tool.

C. Raising the reserve requirement means that banks must hold more money in reserve and cannot lend out as much. This reduces the money supply, which is the goal of a contractionary policy.

D. Buying treasury securities is another expansionary policy tool. When the central bank buys these securities, it increases the money supply by putting more money into the economy. This is the opposite of what a contractionary policy aims to do.

Knowee AI · Accepted Answer

The economic tool that would most likely be used as part of a contractionary monetary policy is C. Raising the reserve requirement.

Here's why:

A contractionary monetary policy is used by a central bank to decrease the supply of money in the economy in an effort to control inflation. This is typically done by increasing interest rates, which discourages borrowing and slows down economic activity.

A. Lowering interest on reserves would actually encourage banks to hold more reserves, which would increase the money supply, not decrease it. This is an expansionary policy tool, not a contractionary one.

B. Reducing the discount rate would make it cheaper for banks to borrow money from the central bank, which would increase the money supply, not decrease it. This is also an expansionary policy tool.

C. Raising the reserve requirement means that banks must hold more money in reserve and cannot lend out as much. This reduces the money supply, which is the goal of a contractionary policy.

D. Buying treasury securities is another expansionary policy tool. When the central bank buys these securities, it increases the money supply by putting more money into the economy. This is the opposite of what a contractionary policy aims to do.

Which economic tool would most likely be used as part of a contractionary monetary policy?A.Lowering interest on reservesB.Reducing the discount rateC.Raising the reserve requirementD.Buying treasury securitiesSUBMITarrow_backPREVIOUS

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