Contractionary policy creates demand for goods and services through government expenditures
A central bank's rate of monetary expansion must be reduced or government spending, especially deficit spending, must be reduced as part of a contractionary policy. It is a specific kind of macroeconomic instrument made to counteract rising inflation or other economic distortions brought on by central banks or government interventions.
A central bank or other similar regulatory body typically implements a contractionary monetary policy. In most cases, the central bank sets an inflation target and uses contractionary monetary policy to achieve it.
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