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Explain Why The Contractionary Monetary Policy

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Abstract
The nation is in an economic crisis and it desperately needs a solution to get the economy back in a stable state. The GDP of the economy is growing to slow, unemployment is at too high of a rate in addition to a high inflation rate and a trillion dollar deficit. I will explain why the Contractionary Monetary Policy is the best method to solve all of the aforementioned problems. I made this decision based on I thought was the best solution based on what I thought what was the most important factor which was the high inflation. The result was inflation was lowered and the deficit was lowered as a result of using this policy. In addition the GDP growth went down and the unemployment rate went up.
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Economic Problem Solving Assignment
The main issue of out of all the economic problems is inflation. The rate of inflation for this scenario is 10 percent while ideally it should be around 2 percent. GDP is growing at alarmingly slow rate of 0.1 percent. The goal would be to get it at 2-3 percent anything above might risk even more inflation. Also. Factories are operating at 70 percent while we need them at around 85 percent because the amount of unsold goods are increasing. Finally unemployment is at a high rate of 10 percent. Lowering that number to …show more content…

The Contractionary Monetary policy lowers inflation by reducing the amount of the money supply. Using this slows the economic growth which is needed since inflation is an increase of price level and goods. The Federal Reserve increases interest rates at which banks which makes it more expensive to use loans which leads to less spending. The Reserve Requirement increase which means banks can lend out less money than before. Central banks will borrow money from people or institutions with the interests increased on the bonds more investors will buy thus causing money to be taken out of

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