Which of the following actions is an example of contractionary monetary policy?

Contractionary monetary policy is implemented with the goal of reducing the money supply in the economy in order to control inflation and stabilize economic growth. Raising interest rates is a key tool in contractionary monetary policy; when interest rates are increased, borrowing becomes more expensive. This typically leads to a decrease in consumer spending and business investments, as individuals and companies are less likely to take out loans.

By increasing interest rates, the central bank discourages excessive spending and encourages savings, ultimately leading to a tightening of the money supply. This action helps to cool down an overheated economy and curb inflation rates that may be rising above desired levels. The overall effect is a reduction in economic activity, which aligns with the objectives of contractionary monetary policy.