Contractionary monetary policy is monetary policy that seeks to reduce the size of the money supply. In most nations, monetary policy is controlled by either a central bank or a finance ministry.
New classical and Keynesian economics significantly differ on the effects and effectiveness of monetary policy on influencing the real economy; there is no clear consensus on how monetary policy affects real economic variables (aggregate output or income, employment). Both economic schools accept that monetary policy affects monetary variables (price levels, interest rates).
Monetary policy relies on a number of tools: monetary base, reserve requirements, discount window lending and interest rates.
Read more about Contractionary Monetary Policy: Monetary Policy and Inflation, Monetary Policy and The Real Economy
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“There is no legislation—I care not what it is—tariff, railroads, corporations, or of a general political character, that all equals in importance the putting of our banking and currency system on the sound basis proposed in the National Monetary Commission plan.”
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