A. Deflation
B. Inflation
C. Recession
D. Balance of Payment deficit
Correct Answer: Option B
B. Inflation
Explanation
A contractionary monetary policy leads to a balance of payment surplus and there is increase in interest rate or cash reserve ratio thereby reducing investment and output. It is used to control inflation, to stabilize the price level exchange rate and achieve equilibrium in the balance of payment and also promote economy development.
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