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Question
Microeconomics
Posted 7 months ago
Which of the following is a contractionary monetary policy tool that is NOT an open market operation?
Choose 1 answer:
(A) Increase the reserve ratio
(B) Decrease taxes
(C) Decrease the discount rate
(D) Sell bonds
(E) Decrease government spending
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Answer from Sia
Posted 7 months ago
Solution
a
Definition of Contractionary Monetary Policy: Contractionary monetary policy is aimed at reducing the money supply to curb inflation
b
Tools of Contractionary Monetary Policy: Common tools include increasing the reserve ratio, increasing the discount rate, and selling bonds
c
Non-Open Market Operation Tool: Among the options, increasing the reserve ratio is a tool that is not an open market operation
Answer
(A) Increase the reserve ratio
Key Concept
Contractionary monetary policy tools
Explanation
Contractionary monetary policy aims to reduce the money supply to control inflation. Increasing the reserve ratio is a tool that achieves this without involving open market operations.
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