Which of the following monetary policy tools is primarily used to decrease liquidity in the economy during a contractionary monetary policy?

The primary tool used to decrease liquidity in the economy during contractionary monetary policy is raising interest rates. When the central bank increases interest rates, borrowing becomes more expensive for individuals and businesses. This means that people are less likely to take out loans for big purchases, like homes or cars, which reduces the amount of money circulating in the economy. For example, if a bank raises its interest rates from 3% to 5%, a family might decide not to buy a new house because their mortgage payments would be higher. By making loans more costly, the central bank helps slow down spending and control inflation during economic downturns.