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: -The Federal Reserve uses three main contractionary monetary tools: increasing interest rates, increasing banks’ reserve requirement, and selling government securities.

Detailed explanation-3: -Contractionary fiscal policy is when the government either cuts spending or raises taxes. It gets its name from the way it contracts the economy. It reduces the amount of money available for businesses and consumers to spend.

Detailed explanation-4: -Answer and Explanation: (c) The Fed raises the discount rate is an example of contractionary monetary policy.

Detailed explanation-5: -Contractionary monetary policy aims to slow down economic growth or even contract the economy in order to keep inflation at bay. It dampens growth primarily by raising interest rates and reducing the supply of money. Higher interest rates cause consumers to reduce spending, especially through the use of credit cards.