What is a characteristic of contractionary monetary policy?

Contractionary monetary policy is primarily employed to control inflation and stabilize an economy experiencing rapid growth or rising prices. By decreasing the money supply, central banks aim to reduce the amount of money available in the economy, which in turn can help constrain consumer spending and investment.

When the money supply is decreased, interest rates generally increase, making borrowing more expensive. Higher interest rates can dampen consumer and business spending, which helps to slow down economic activity and reduce inflationary pressures. This approach is used to maintain price stability and ensure that inflation does not erode the purchasing power of consumers.

The other options describe expansionary measures or fiscal policies rather than contractionary monetary policy. Increasing money supply or government expenditure and lowering taxes are strategies aimed at stimulating economic growth, which goes against the principle of contractionary monetary policy that focuses on restraining growth to control inflation.