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Economics glossary · Policy and the financial sector

Tight monetary policy

What tight monetary policy means in economics, as one of loose and tight monetary policy, with an example and a question to test yourself.

Definition
Tight monetary policy
Tight, or contractionary, monetary policy raises interest rates and reduces borrowing, so firms invest less, households borrow less for houses and cars, and aggregate demand shifts left.
Example

Can you think of an example of tight monetary policy?

Test yourself

Can you name the two stances monetary policy can take?

Learn it properly: the module

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