ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -An unwanted side effect of a contractionary monetary policy is a rise in unemployment. The economic slowdown and lower production cause companies to hire fewer employees. Therefore, unemployment in the economy increases.

Detailed explanation-2: -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-3: -A contractionary policy is a monetary measure to reduce government spending or the rate of monetary expansion by a central bank. It is a macroeconomic tool used to combat rising inflation.

Detailed explanation-4: -Contractionary fiscal policy is used to slow economic growth, such as when inflation is growing too rapidly. The opposite of expansionary fiscal policy, contractionary fiscal policy raises taxes to cut spending. As consumers pay more taxes, they have less money to spend, and economic stimulation and growth slow.

Detailed explanation-5: -Contractionary monetary policy can lead to increased unemployment and decreased borrowing and spending by consumers and businesses, which can eventually lead to an economic recession if too aggressively applied.