What is Tight Monetary Policy?
A tight monetary policy is a strategy that is usually invoked when there is concern about the rate of growth in a given economy. Generally, the policy is invoked by the financial agency within a particular nation when the economy appears to be growing at a pace that is considered to be too fast. The idea behind the tight money policy is to slow down the rate of inflation that often comes along with excessively rapid growth. In the United States, the Federal Reserve is normally the entity that invokes a tight monetary policy. This is accomplished by raising the short-term interest rates that are available to consumers. This action has in times past shown an ability to aid in curbing inflation, as it tends to inhibit lending somewhat and thus slow the economy by a small margin. At the same time, the Federal Reserve may choose to sell Treasuries as a means of helping to slow the pace of the economy. This aspect of the central bank policy functions mainly by taking extra capital out of the
