Tight monetary policy,
Definition of Tight monetary policy:
Tight, or contractionary monetary policy is a course of action undertaken by a central bank such as the Federal Reserve to slow down overheated economic growth, to constrict spending in an economy that is seen to be accelerating too quickly, or to curb inflation when it is rising too fast.
Restriction of money supply in an economy by the central bank through (1) tightening of credit qualifications, (2) soaking up cash by selling government bonds, and/or (3) raising the banks reserve requirements.
The central bank tightens policy or makes money tight by raising short-term interest rates through policy changes to the discount rate, also known as the federal funds rate. Boosting interest rates increases the cost of borrowing and effectively reduces its attractiveness. Tight monetary policy can also be implemented via selling assets on the central bank's balance sheet to the market through open market operations (OMO).
How to use Tight monetary policy in a sentence?
- Central banks engage in tight monetary policy when an economy is accelerating too quickly or inflation—overall prices—is rising too fast.
- Tight monetary policy is an action undertaken by a central bank such as the Federal Reserve to slow down overheated economic growth.
- Hiking the federal funds rate–the rate at which banks lend to each other–increases borrowing rates and slows lending.
Meaning of Tight monetary policy & Tight monetary policy Definition