.......For example, when there is a situation of inflation, i.e, comparative price rise, the central bank may decide to tighten the supply of money by increasing the reserve requirements of the banks and the key interest rates. Tightening the supply of money because what happens during Inflation is that lot of money chases few goods. There is money but with a weak purchasing power. Now, banks will have to pay more towards the central bank which reduces the amount of money in circulation. Such a policy is called a Contractionary Monetary Policy........
Read - Greater Kashmir
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