
In addition, the decrease in the money supply will lead to a decrease in consumer spending. The decrease in the money supply is mirrored by an equal decrease in the nominal output, otherwise known as Gross Domestic Product (GDP). What are the implication of contractionary monetary policy?Ĭontractionary monetary policy decreases the money supply in an economy. How expansionary fiscal policy can be implemented by a government? Contractionary fiscal policy occurs when Congress raises tax rates or cuts government spending, shifting aggregate demand to the left. What happens in expansionary fiscal policy?Įxpansionary fiscal policy occurs when the Congress acts to cut tax rates or increase government spending, shifting the aggregate demand curve to the right. Both of these policies are intended to increase aggregate demand while contributing to deficits or drawing down of budget surpluses. The two major examples of expansionary fiscal policy are tax cuts and increased government spending. What are examples of expansionary fiscal policy?


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