Concept:Contractionary monetary policy reduces the amount of money in circulation to cool down an overheated economy.
Explanation:When a central bank wants to control high prices, it applies a contractionary policy.
It uses tools such as increasing the cash reserve ratio or raising the interest rate.
Higher interest rates make borrowing more expensive, so consumers and firms reduce spending and investment.
This lowers aggregate demand and reduces upward pressure on price levels.
As the money supply shrinks, spending power falls and inflation is brought under control.
Therefore, the main purpose of a contractionary monetary policy is to fight inflation rather than deflation, recession, or balance of payment deficit.
Answer:Inflation (Option B).