ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The government does this by increasing taxes, reducing public spending, and cutting public sector pay or jobs. Where expansionary fiscal policy involves spending deficits, contractionary fiscal policy is characterized by budget surpluses. This policy is rarely used, however, as it is hugely unpopular politically.

Detailed explanation-2: -The Fed has traditionally used three tools to conduct monetary policy: reserve requirements, the discount rate, and open market operations.

Detailed explanation-3: -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-4: -The Federal Reserve uses three main contractionary monetary tools: increasing interest rates, increasing banks’ reserve requirement, and selling government securities.