Contractionary Monetary Policy
Contractionary monetary policy is a type of economic policy used by central banks to fight inflation. It is the opposite of expansionary monetary policy, which is used to stimulate economic growth. Contractionary monetary policy is used to reduce the money supply in the economy, which in turn reduces inflation. This is done by raising interest rates, reducing the money supply, or both. The goal of contractionary monetary policy is to reduce inflation and stabilize the economy.
History of Contractionary Monetary Policy
Contractionary monetary policy has been used since the early 20th century. It was first used by the Federal Reserve in the United States in the 1920s to combat the effects of the Great Depression. Since then, it has been used by central banks around the world to fight inflation and stabilize the economy. In recent years, contractionary monetary policy has been used by the European Central Bank, the Bank of Japan, and the Bank of England to combat the effects of the global financial crisis.
Comparison of Expansionary and Contractionary Monetary Policy
| Policy | Interest Rates | Money Supply |
|---|---|---|
| Expansionary | Low | High |
| Contractionary | High | Low |
Summary
Contractionary monetary policy is a type of economic policy used by central banks to fight inflation. It is the opposite of expansionary monetary policy, which is used to stimulate economic growth. Contractionary monetary policy is used to reduce the money supply in the economy, which in turn reduces inflation. This is done by raising interest rates, reducing the money supply, or both. For more information on contractionary monetary policy, visit the websites of the Federal Reserve, the European Central Bank, the Bank of Japan, and the Bank of England.
See Also
- Expansionary Monetary Policy
- Monetary Policy
- Inflation
- Interest Rates
- Money Supply
- Central Bank
- Federal Reserve
- European Central Bank
- Bank of Japan
- Bank of England
