What monetary policy involves decreasing the money supply

Question: What monetary policy involves decreasing the money supply

Answer

This is a contractionary monetary policy that involves the reduction by one nation’s central bank of money supply in its entirety to bring down economic growth and curtail inflation. This is typically achieved by increasing interest rates, which diminish lending and borrowing among consumers and corporations. Individuals save more while consuming less with the high cost of money, meaning that capital flows are decreased and effectively reducing the blood supply of cash. In fact, contractionary policies close the taps which pump more money into society. They serve as tools to curtail inflation but may lead to increased unemployment and possible risk of recession if misused . Applying an intentional, rational reduction to the overall stock of investible cash attainable through their control over money supply creations enables central banks’ tackle inflationary tendencies and in turn harms that result from unbridled expansionary policy via contraction methods.