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Detailed explanation-1: -How does contractionary fiscal policy affect economic growth? Contractionary fiscal policies typically slow economic growth. Reducing government spending slows an economy, as does increasing tax revenue. However, contractionary fiscal policy is typically used to slow an economy that is growing quickly.

Detailed explanation-2: -A contractionary policy is a tool used to reduce government spending or the rate of monetary expansion by a central bank to combat rising inflation. The main contractionary policies employed by the United States include raising interest rates, increasing bank reserve requirements, and selling government securities.

Detailed explanation-3: -Contractionary fiscal policy Under contractionary fiscal policies, the economy usually grows by no more than 3% per year. Above this growth rate, negative economic consequences – such as inflation, asset bubbles, increased unemployment and even recessions – may occur.

Detailed explanation-4: -To combat inflation, the government could use contractionary fiscal policy. In this case, it might raise taxes and decrease government spending in an attempt reduce the total level of spending. Many economists suggests that monetary policy, enacted by the Federal Reserve, is more effective for reducing inflation.