Which action is characteristic of contractionary monetary policy?

Raising interest rates is characteristic of contractionary monetary policy because it serves to decrease the money supply in the economy. When central banks, such as the Federal Reserve, increase interest rates, borrowing becomes more expensive for consumers and businesses. As a result, this often leads to reduced spending and investment, which helps slow down economic activity and can be used to combat inflation.

In a contractionary monetary policy stance, the goal is to control inflation by tightening the availability of money in the economy. When interest rates rise, individuals and companies are less likely to take out loans, which ultimately lowers the overall demand for goods and services in the economy.

Lowering interest rates, increasing the money supply, and reducing reserve requirements are actions typically associated with expansionary monetary policy, aimed at stimulating economic growth, encouraging borrowing, and increasing spending. Instead, contractionary monetary policy seeks to reduce the risk of inflation by curbing excessive growth in the economy.