Generally speaking contractionary monetary policies and expansionary monetary policies involve changing the level of the money supply in a country. Expansionary monetary policy is simply a policy which expands (increases) the supply of money, whereas contractionary monetary policy contracts (decreases) the supply of a country's currency.

The full version of Tutorial 6 reviews the concepts of expansionary, contractionary and neutral fiscal policy, of discretionary fiscal policy and automatic stabilizers, of the budget balance, of Expansionary fiscal policy is a form of fiscal policy that involves decreasing taxes, increasing government expenditures or both, in order to fight recessionary pressures.. A decrease in taxes means that households have more disposal income to spend. Higher disposal income increases consumption which increases the gross domestic product (GDP). Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply. Fiscal policy is carried out by the legislative and/or the executive branches of government. The two main instruments of fiscal policy are government expenditures and taxes. The government collects taxes in order to finance expenditures on a number of public goods and services—for example, highways and national defense. [5] In other words, fiscal policy that increases aggregate demand directly through an increase in government spending is typically called expansionary or loose. By contrast, fiscal policy is often considered contractionary or tight if it reduces demand via lower spending. Effects of Fiscal Policy Macro Section 5 study guide by katielippoldt includes 162 questions covering vocabulary, terms and more. Quizlet flashcards, activities and games help you improve your grades. A contractionary fiscal policy is implemented when there is