Contractionary policy

Definition

A contractionary policy is a monetary or fiscal strategy implemented by a government or central bank to reduce inflation and slow down economic growth by decreasing the money supply or increasing interest rates. This policy typically involves raising taxes or reducing government spending.

Related terms

Inflation:

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Monetary Policy:

The process by which the central bank or monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

Fiscal Policy:

Government adjustments to its spending levels and tax rates to monitor and influence a nation's economy