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