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If the central bank wants to contract aggregate demand, it can ________ the money supply and thereby ________ the interest rate.

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If the central bank wants to contract aggregate demand, it can reduce the money supply and thereby increase the interest rate.

How is aggregate demand contracted by the central bank?

The ways that the central bank can contract aggregate demand are:

  1. Increasing higher interest rates
  2. Increase the reserve ratio
  3. Reducing the quantity of loanable funds.

When it reduces the interest rates and the reserve ratio, it will increase the money supply and aggregate demand will increase.

Thus, if the central bank wants to contract aggregate demand, it can reduce the money supply and thereby increase the interest rate.

Learn more about contracting aggregate demand at https://brainly.com/question/14452841

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