contractionary policy. Contractionary fiscal policy is the opposite of expansionary fiscal policy. Which of the following is a monetary policy action used to combat a recession? 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: A contractionary policy is a kind of policy which lays emphasis on reduction in the level of money supply for a lesser spending and investment thereafter so as to slow down an economy. increasing the money supply. Suppose the macro equilibrium occurs at a level of GDP above potential, as shown in Figure 3. The contractionary policy is used as a fiscal policy in the event of fiscal recession, to raise taxes or decrease real government expenditures. required reserve ratio. The intersection of aggregate demand (AD 0) and aggregate supply (AS 0) occurs at equilibrium E 0. Expansionary monetary policy involves an increase in money supply which in turn increases aggregate demand. The goal of the contractionary fiscal policy is to slow growth to a healthy financial standard. To fight rapid inflation in the economy. To discourage individuals from spending. This type of fiscal policy is best used during times of economic prosperity. Contractionary Policy as Fiscal Policy. raising taxes. What is contractionary policy used for? Contractionary Fiscal Policy. decreasing the money supply. Fiscal policy can also be used to slow down an overheating economy. Contractionary fiscal policy: In contractionary fiscal policy, the government taxes more than it spends—either by increasing tax rates, decreasing spending, or both. . contractionary policy . Contractionary monetary policy is a form of economic policy used to fight inflation which involves decreasing the money supply in order to increase the cost of borrowing which in turn decreases GDP and dampens inflation.. Monetary policy can either be expansionary or contractionary. Expansionary policy is used when the economy is under recession and unemployment rates are high. monetary policy. discount rate. What is a Contractionary Monetary Policy? 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 … In order to implement expansionary policy, the government and Central Bank must _____ government spending, _____ taxes, and _____ interest rates. This borrowing will most likely impact the demand for money, interest rate, ... Congress prefers to leave fiscal policy decisions to the Federal Reserve. alternatives . answer choices . What is contractionary policy used for? 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 product and moderate or decrease inflation too. This ranges from 2% to 3% per year. Explanation: why because its the government cutting taxes.