Which scenario indicates that a contractionary monetary policy is needed?

Which scenario indicates that a contractionary monetary policy is needed?

When the economy is growing at a faster rate it is leading to inflation and to combat inflation contractionary monetary is needed. The contractionary monetary policy restricts the amount of money supply and controls the general price level in the economy.

What is an expansionary monetary policy?

Expansionary monetary policy works by expanding the money supply faster than usual or lowering short-term interest rates. It is enacted by central banks and comes about through open market operations, reserve requirements, and setting interest rates.

What are two types of expansionary policies?

There are two types of expansionary policies – fiscal and monetary. Expansionary monetary policy focuses on increased money supply, while expansionary fiscal policy revolves around increased investment by the government into the economy.

What is a contractionary policy?

Contractionary policy is a monetary measure referring either to a reduction in government spending—particularly deficit spending—or a reduction in the rate of monetary expansion by a central bank.

What is the difference between expansionary and contractionary policy?

There are two types of fiscal policy: Contractionary fiscal policy and expansionary fiscal policy. Contractionary fiscal policy is when the government taxes more than it spends. Expansionary fiscal policy is when the government spends more than it taxes.

Which of the following is an example of expansionary fiscal policy?

The two major examples of expansionary fiscal policy are tax cuts and increased government spending. Both of these policies are intended to increase aggregate demand while contributing to deficits or drawing down of budget surpluses.

What are the goals of fiscal policy?

The usual goals of both fiscal and monetary policy are to achieve or maintain full employment, to achieve or maintain a high rate of economic growth, and to stabilize prices and wages.

Which one of the following is not an example of fiscal policy?

The correct answer is b) Increasing the interest rate target.

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