Contractionary Monetary Policy: Slowing the Economy Down


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An economy is facing moderate output growth but significantly high inflation rates. Which of the following policy actions can the Federal Reserve use to address this problem?

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1. If a nation is operating at full employment and the central bank engages in contractionary monetary policy, how will the interest rate and the unemployment rate change?

2. If the supply of money decreases, what happens in the money market?

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About This Quiz & Worksheet

Contractionary monetary policy is a multifaceted plan to regulate the economy enacted by the Federal Reserve. Learn how the Fed implements this policy and when they deem it necessary.

Quiz & Worksheet Goals

With these materials, you will learn about the following:

  • Lowering inflationary expectations
  • Examples of contractionary monetary policies
  • Supply of money decreasing

Skills Practiced

You will utilize the following skills using this quiz and worksheet:

  • Reading comprehension - ensure that you draw the most important information from the related contractionary monetary policy lesson
  • Making connections - use understanding of the concept of interest rates and the consequences of raising them
  • Critical thinking - apply relevant concepts to examine information about the Federal Reserve's role in a different light

Additional Learning

Get a closer look at this subject with the attached lesson on Contractionary Monetary Policy: Slowing the Economy Down. You will learn how to:

  • Discuss the effectiveness of contractionary monetary policy
  • List instances in which contractionary monetary policy has come into effect.
  • Describe the overarching results of this system