ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -Expansionary fiscal policy is an increase in government spending or a decrease in taxation, while contractionary fiscal policy is a decrease in government spending or an increase in taxes. Expansionary fiscal policy can be used by governments to stimulate the economy during a recession.

Detailed explanation-3: -Fiscal policy that increases aggregate demand directly through an increase in government spending is typically called expansionary or “loose.” By contrast, fiscal policy is often considered contractionary or “tight” if it reduces demand via lower spending.

Detailed explanation-4: -In response to the financial slowdown and its impact on the economy, the government plays a key role by increasing its spending in order to boost economic growth.

Detailed explanation-5: -Balanced budget refers to a situation where the budget expenditure of the government on tax is equal to the budget revenue of the government from tax paid by the public.