ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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: -To enact contractionary fiscal policy, the government may decrease spending, increase taxes, and enact a combination of decreased spending and increased taxation.

Detailed explanation-3: -A contractionary policy attempts to slow the economy by reducing the money supply and fending off inflation. An expansionary policy is an effort that central banks use to stimulate an economy by boosting demand through monetary and fiscal stimulus.

Detailed explanation-4: -Contractionary fiscal policy includes raising taxes, decreasing spending, or a combination of the two. These actions reduce an economy’s aggregate demand. Businesses slow production as their inventories increase. They may lay off workers or have their workers work fewer hours to produce less.