Contractionary Monetary Policy

Definition

Contractionary monetary policy is an economic strategy used by central banks to slow down inflation or control excessive economic growth. It involves decreasing the money supply and raising interest rates to discourage borrowing and spending.

Related terms

Tight Monetary Policy: Another term for contractionary monetary policy, emphasizing the restrictive measures taken to rein in economic growth.

Inflation: The general increase in prices over time. Contractionary monetary policy aims to combat inflation by reducing spending and curbing excessive economic growth.

Reserve Requirements: The amount of funds that banks are required to hold as a percentage of their deposits. Adjusting reserve requirements is one tool used in contractionary monetary policy.