Question

a ____ monetary policy can be used to reduces inflation because it ____ the costs off borrowing and ____ spending.

a. expansionary, raises, reduces

b. loose, reduces, reduces

c. tight, raises, reduces

d. contractionary, reduces, stimulates

Answer 1

Please rate the answer
Answer c.  tight, raises, reduces

The central bank uses tight/contractionary monetary policies to combat inflation ( excess demand ) . The bank will tighten the requirements to avail loans by increasing interest rates like bank rate and repo rate. As a result the aggregate demand for consumption Expenditure will reduce . The cost of borrowing increases due to higher interest rates.

A tight monetary policy can be used to reduces inflation because it raises the costs off borrowing and reduces spending.