A tight monetary policy refers to a central bank policy aimed at cooling down an overheated economy and features higher interest rates and a tighter money supply.
What does it mean when the economy is overheated?
When an economy's capacity for production cannot keep up with rising aggregate demand, the economy overheats. It is typically characterized by economic growth that is occurring at an unsustainable rate and is below average. Overheated economies are a common feature of boom times.
How do you stop an economy from overheating?
An additional method of slowing economic growth is via raising interest rates (monetary policy). Because higher interest rates encourage consumers and businesses to save more and spend less, this lowers the level of demand in the economy.
Learn more about monetary policy: https://brainly.com/question/3817564
#SJP4
