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Expansionary policy occurs when a monetary authority uses its instruments to stimulate the economy. An expansionary policy decreases short-term interest rates, affecting broader financial conditions to encourage spending on goods and services, in turn leading to increased employment.
To curtail Unemployment, we would use Expansionary monetary policy which would do the same as above. In order to cure the Current account deficit in the economy, we need to increase the exports by a devaluation , that would, in turn, help in increasing the employment by creating more jobs.
Contractionary fiscal policy, on the other hand, is a measure to increase tax rates and decrease government spending. It occurs when government deficit spending is lower than usual. It occurs when government deficit spending is lower than usual.
Procyclical has a different meaning in the context of economic policy. In this context, it refers to any aspect of economic policy that could magnify economic or financial fluctuations. Of course, since the effects of particular policies are often uncertain or disputed, a policy will be often procyclical, countercyclical or acyclical according ...
A statement on the government's website said the State Council had approved a plan to invest 4 trillion yuan in infrastructure and social welfare by the end of 2010. [5] [6] This stimulus, equivalent to US$586 billion, represented a pledge comparable to that subsequently announced by the United States, but which came from an economy only one third the size. [7]
The Federal Reserve has talked financial markets into creating an easier environment, which paradoxically makes lowering rates a more difficult task for the central bank, a top economist said.
An IMF working paper [4] by Guajardo, Leigh, and Pescatori [5] published in Journal of the European Economic Association on Expansionary Austerity and the Expansionary Fiscal Contraction hypothesis that examined changes in policy designed to reduce deficits found that austerity had contractionary effects on private domestic demand and GDP.
Conversely, negative demand shocks may be caused by contractionary economic policy. Supply shocks may also lead to both higher or lower inflation, depending on the character of the shock. Cost-push inflation is caused by a drop in aggregate supply (potential output).