What is the effect of contractionary fiscal policy on the money supply?

A) it depends

B) doesn't affect it

C) decreases it

D) increases it

C. Decreases money supply

Explanation:

The contractionary fiscal policy happens when the central bank of a particular nation raises its interest rates to prevent inflation. This will result to a decrease in money supply in the economy. The government expenditures are cut-down and there will be increased taxes causing the budget surplus of the government to increase.