ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -Contractionary monetary policy is implemented by the Fed when the economy is facing an increasing amount of inflation due to a boom in the economy. The Fed will increase the interest rate to reduce credit and will reduce money supply in the economy in order to slowdown expenditure and prices.

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: -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.