Final answer:
Contradiction arises in monetary policy when higher interest rates on reserves encourage banks to decrease lending, undermining expansionary goals of increasing the money supply and stimulating economic growth.
Step-by-step explanation:
Raising interest rates on reserves is considered contradictory to an expansionary monetary policy because it can lead to banks holding onto their reserves, rather than lending them out. This results in a reduction of the money supply available for loans and investments, which can subsequently decrease aggregate demand and slow down economic growth. When the central bank pulls on the monetary policy string through contractionary actions, they can definitively raise interest rates and reduce aggregate demand.
However, when trying to push with expansionary policy, if banks choose not to lend, the policy may be less effective. A central bank might increase interest rates to combat inflation or to regulate aggregate demand, particularly when faced with government budget deficits causing crowding out of private investment.