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    Expansionary and Contractionary Policies

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    In terms of expansionary or contractionary policies, which do policy do you see more in line with the politics of the Democratic Party?

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    Contractionary Policy:

    A type of policy that is used as a macroeconomic tool by the country's central bank or finance ministry to slow down an economy. Contractionary policies are enacted by a government to reduce the money supply and ultimately the spending in a country.

    This is done primarily through:
    1. Increasing interest rates
    2. Increasing reserve requirements
    3. Reducing the money supply, directly or indirectly

    This tool is used during high-growth periods of the business cycle, but does not have an immediate effect.
    Investopedia Says

    Contractionary Policy:

    When both spending and the availability of money are high, prices start to rise - this is known as inflation. When a country is experiencing higher-than-anticipated inflation, the government might step in with a contractionary policy to try to slow down the economy. Their goal is to reduce spending by making it less ...

    Solution Summary

    Contractionary and expansionary policies work in different ways to affect the economy. Contractionary policies often work to reduce the money supply and spending. Expansionary policies often work to expand the money supply to encourage economic growth or combat inflation (high prices). This problem addresses these differences in economic policies.