Concept:To control inflation, the central bank must reduce money supply and credit, which is done through a restrictive monetary policy.
Explanation:Inflation occurs when too much money chases too few goods, causing prices to rise.
The central bank can control this by limiting the amount of money in circulation.
A restrictive monetary policy is used for this exact purpose.
It restricts the ability of banks to lend by reducing their available liquidity.
This makes loans and credit more expensive and harder to obtain.
As a result, borrowing, spending, and demand in the economy decrease.
With lower aggregate demand, price levels stop rising and inflation is controlled.
By contrast, an expansionary monetary policy would increase the money supply and make inflation worse.
Answer:Option B — a restrictive monetary policy.