ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Contractionary fiscal policy: As the term suggests, this policy is designed to slow economic growth in case of high inflation. The contractionary fiscal policy raises taxes and cuts spending.

Detailed explanation-2: -Contractionary fiscal policy is when the government either cuts spending or raises taxes. It gets its name from the way it contracts the economy.

Detailed explanation-3: -Contractionary monetary policy is when a central bank uses its monetary policy tools to fight inflation. It’s how the bank slows economic growth. Inflation is a sign of an overheated economy. It’s also called a restrictive monetary policy because it restricts liquidity.

Detailed explanation-4: -It is a macroeconomic tool used to combat rising inflation. The main contractionary policies employed by the United States government include raising interest rates, increasing bank reserve requirements, and selling government securities.

Detailed explanation-5: -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.