Describe the interactions you have with the environment that you depend on to meet your basic needs.

D. It encourages banks to keep money in reserve instead of lending

Explanation:

If the central bank raises interest rates on reserves, it means that commercial banks will have more incentive to hold more money in reserves, which also means that they will have less funds to loan out. If commercial banks make less loans, they create less money, leading to a reduction of the money supply, and this is why this policy is considered to be contractionary.