Answer:
Reduce or contral inflation
Explanation:
Contractionary policy refers to actions at reducing the money supply in the economy. They are measures that reduce government spending and private sector expenditure on consumption and investment. Contractionary policies are applied when the economy is experiencing a high rate of inflation to slow down growth.
Contractionary policies will include both monetary or fiscal. Monetary contractionary policies are the actions of the Federal Reserve that reduce the money supply. They include increment in the reserve ratio requirement, open market sales, and an increase in the discount rate. Fiscal contractional policies will involve reductions in government spending and an increase in taxation. Contractionary policy results in a reduced inflation rate and slower growth rate.
