Seekh Logo

AI-powered learning platform providing comprehensive practice questions, detailed explanations, and interactive study tools across multiple subjects.

Explore Subjects

Sciences
  • Astronomy
  • Biology
  • Chemistry
  • Physics
Humanities
  • Psychology
  • History
  • Philosophy

Learning Tools

  • Study Library
  • Practice Quizzes
  • Flashcards
  • Study Summaries
  • Q&A Bank
  • PDF to Quiz Converter
  • Video Summarizer
  • Smart Flashcards

Support

  • Help Center
  • Contact Us
  • Privacy Policy
  • Terms of Service
  • Pricing

© 2025 Seekh Education. All rights reserved.

Seekh Logo
HomeHomework HelpeconomicsContractionary Monetary Policy

Contractionary Monetary Policy

Contractionary monetary policy is a strategy used by central banks to decrease the money supply and raise interest rates, aiming to reduce inflation and stabilize the economy. This policy often involves increasing interest on reserves, which raises borrowing costs and can lead to decreased consumer spending and investment. Understanding this concept is crucial for comprehending how central banks influence economic conditions and control inflationary pressures in the market.

intermediate
2 hours
Economics
0 views this week
Study FlashcardsQuick Summary
0

Overview

Contractionary monetary policy is a crucial tool used by central banks to manage inflation and stabilize the economy. By reducing the money supply and increasing interest rates, central banks aim to control excessive inflation, which can erode purchasing power and lead to economic instability. Under...

Quick Links

Study FlashcardsQuick SummaryPractice Questions

Key Terms

Monetary Policy
The process by which a central bank manages the money supply and interest rates.

Example: The Federal Reserve uses monetary policy to influence economic activity.

Inflation
The rate at which the general level of prices for goods and services rises.

Example: A 2% inflation rate means prices increase by 2% over a year.

Interest Rate
The amount charged by lenders to borrowers for the use of money.

Example: A higher interest rate makes loans more expensive.

Central Bank
The national bank that provides financial and banking services for its country's government and commercial banking system.

Example: The Federal Reserve is the central bank of the United States.

Money Supply
The total amount of money available in an economy at a specific time.

Example: An increase in money supply can lead to inflation.

Reserve Requirements
The minimum amount of reserves a bank must hold against deposits.

Example: If the reserve requirement is 10%, a bank must keep $10 for every $100 deposited.

Related Topics

Expansionary Monetary Policy
A strategy to increase the money supply and lower interest rates to stimulate economic growth.
intermediate
Fiscal Policy
Government spending and tax policies used to influence economic conditions.
intermediate
Inflation Targeting
A monetary policy strategy aimed at maintaining a specified inflation rate.
intermediate

Key Concepts

money supplyinterest ratesinflationcentral bank