Which policy aims to control inflation by reducing the money supply?

The policy that aims to control inflation by reducing the money supply is contractionary monetary policy. This approach is used by central banks, such as the Federal Reserve, to curb inflationary pressures in the economy. When inflation rises, central banks may increase interest rates or sell government securities to absorb excess money from the financial system, effectively decreasing the money supply.

Lowering the money supply helps to reduce consumer spending and business investments, as higher interest rates make borrowing more expensive. This, in turn, can lead to a decrease in aggregate demand, which can help stabilize prices and control inflation.

Expansionary monetary policy, on the other hand, seeks to increase the money supply to stimulate the economy, which can lead to higher inflation if done excessively. Supply-side fiscal policy focuses on increasing economic output by improving the supply side, such as through tax cuts or deregulation, rather than directly addressing inflation. Demand-side fiscal policy, in contrast, aims to influence economic activity through government spending and taxation, which may not specifically target inflation control.