Q. With reference to the nature of Monetary Policy, consider the following statements:
1.An expansionary monetary policy is used to control inflation by decreasing the money supply and raising interest rates.
2.A contractionary monetary policy aims to reduce inflationary pressure in the economy by tightening liquidity and increasing borrowing costs.
Which of the statements given above is/are correct?
Answer: B
Notes:
Explanation:
- Expansionary (or accommodative) monetary policy is aimed at boosting economic activity by increasing the money supply and lowering interest rates—not for controlling inflation but for stimulating growth and reducing unemployment.
- Contractionary (or tight) monetary policy is adopted to reduce inflation by reducing the money supply and increasing interest rates, thereby discouraging excessive spending and borrowing.
Source: Laxmikant (Polity)
