The contractionary policy is used as a fiscal policy in the event of fiscal recession, to raise taxes or decrease real government expenditures. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy involves raising interest rates in order to combat inflation. Monetary policy can either be expansionary or contractionary. This type of fiscal policy is best used during times of economic prosperity. What is contractionary policy used for? discount rate. Expansionary policy is used when the economy is under recession and unemployment rates are high. cutting taxes. Expansionary monetary policy involves an increase in money supply which in turn increases aggregate demand. Contractionary monetary policy is the type of economic policy that is basically used to deal with inflation and it also involves minimizing the fund’s supply in order to bring an enhancement in the cost of borrowings which will ultimately lower the gross domestic … Contractionary fiscal policy is the opposite of expansionary fiscal policy. raising taxes. What is contractionary policy used for? What is a Contractionary Monetary Policy? required reserve ratio. monetary policy. When a nation is entering a period of inflation, taking steps to make it less desirable for consumers to spend money will help slow the rate of inflation, and thus provide more time to implement additional policies that over time minimize the impact of inflation on the overall economy. Contractionary macro-economic policy. increasing the money supply. Contractionary Fiscal Policy. decreasing the money supply. Suppose the macro equilibrium occurs at a level of GDP above potential, as shown in Figure 3. Contractionary fiscal policy: In contractionary fiscal policy, the government taxes more than it spends—either by increasing tax rates, decreasing spending, or both. alternatives . The intersection of aggregate demand (AD 0) and aggregate supply (AS 0) occurs at equilibrium E 0. Fiscal policy can also be used to slow down an overheating economy. Contractionary policy is implemented when policy makers use monetary or fiscal policy to constrain aggregate spending in an economy. This ranges from 2% to 3% per year. Often, contractionary policy is used to at least partially slow inflation within a given economy. To discourage individuals from spending. In other words, it represents the tools that the government can use to help stabilize the economy and smooth out bubbles and upswings where inflation is more likely. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy involves raising interest rates in order to combat inflation. The goal of the contractionary fiscal policy is to slow growth to a healthy financial standard. Which of the following is a monetary policy action used to combat a recession? In order to implement expansionary policy, the government and Central Bank must _____ government spending, _____ taxes, and _____ interest rates. Contractionary Policy as Fiscal Policy. A contractionary monetary policy is a type of monetary policy that is intended to reduce the rate of monetary expansion to fight inflation Inflation Inflation is an economic concept that refers to increases in the price level of goods over a set period of time. contractionary policy. answer choices . contractionary policy . 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