Question 6 of 10 Which economic tool would most likely be used as part of a contractionary
monetary policy?
A. Lowering interest on reserves
B. Reducing the discount rate
C. Raising the reserve requirement
D. Buying treasury securities

C. Raising the reserve requirement

Explanation:

Contractionary monetary policy refers to the Fed's action of reducing money supply in the economy. Reducing the money supply slows down the economy, thereby countering expansion and inflationary pressures. Raising the reserve requirement is one tool that the Fed uses as a contractionary monetary policy.

Reserve requirements refer to the percentage of customer deposits that the Fed requires commercial banks to maintain at all times. An increase in reserve requirement decreases the money available for banks to lend out. Reduced lending means a decrease in the money supply, which results in a decline in the inflation rate.

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