contractionary monetary policy


When the Federal Reserve uses its tools to put the brakes on the economy in order to prevent inflation. The will typically mean raising the federal funds rate, which in turn, increases the rate that banks will charge each other to borrow funds in order to meet the requirement of the Federal Reserve. This refers to the amount that the Fed requires banks to have on deposit each night when they close their books. Without having this requirement, banks would loan out each and every dollar that they have. Thus, raising the federal funds rate will decrease the money supply because it is essentially better for the banks to lend a little bit less and not have to pay a higher federal funds rate.

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You should try to make sure that you fully understand anything in the contractionary monetary policy before you sign it.

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One policy I was firmly against was the contractionary monetary policy because it was not good and did not do any good for anyone.

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The contractionary monetary policy was used instead of the inflationary monetary policy because the economy was booming at this time.

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