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An expansionary monetary policy focuses on expanding the money supply in the economy while contractionary monetary policy focuses on money supply in the economy. The central bank uses its monetary tools to either decrease or increase money supply in the market.
Expansionary fiscal policies are those that expand the economy such as reduction of taxes and increasing government spending. Contractionary fiscal policies on the other hand are those which slow down the economy for instance, reducing government spending and increasing taxes.
aggregate demand is the measure of the demand of an economy's gross domestic product. Fiscal policy influences government expenditure and has an impact on the consumption and investment factors. monetary policy influences money supply which in turn influences interest rates and inflation.
an increase in inflation encourages higher investment in the future and allows workers to expect higher wages.
oversupplying the economy with money is a risk and high levels of inflation in the economy makes the currency lose its value in that market.
fiscal policy pro
Unlike monetary policy tools which are general in nature, a government can direct spending towards specific projects, sectors, or regions to stimulate the economy where it is perceived to be needed to most.
The effect of fiscal stimulus is muted when the money put in to the economy through tax savings or government spending is spent on imports, sending that money abroad instead of keeping it in the local economy.
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