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Contractionary fiscal policy does the reverse: it decreases the level of aggregate demand by decreasing consumption, decreasing investment, and decreasing government spending, either through cuts in government spending or increases in taxes.
Jul 17, 2023 · A contractionary fiscal policy is implemented when there is demand-pull inflation. It can also be used to pay off unwanted debt. In pursuing contractionary fiscal policy the government can decrease its spending, raise taxes, or pursue a combination of the two.
By contrast, fiscal policy is often considered contractionary or “tight” if it reduces demand via lower spending. Besides providing goods and services like public safety, highways, or primary education, fiscal policy objectives vary.
