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