The output gap that occurs when actual output is less than potential output
A contractionary gap occurs when an economy's actual output is less than its potential output. This leads to high unemployment and underutilization of resources. Policymakers may implement contractionary monetary or fiscal policies to close this gap and bring the economy back to full employment.
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Assume certeris paribus, an expansionary gap is where real GDP is above the full employment, and a contractionary gap is where real GDP is below the full employment.
The government can lower taxes or interest rates.
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A contractionary fiscal policy refers to government measures to reduce its expenditure in order to close the inflationary gap. The government reduces the money in supply by effecting tax increases.
A contractionary fiscal policy refers to government measures to reduce its expenditure in order to close the inflationary gap. The government reduces the money in supply by effecting tax increases.
A contractionary monetary policy or a contractionary fiscal policy.
Contractionary fiscal policy is a decrease in government purchases,increase in net taxes,or some combination of the two aimed at reducing aggregate demand enough to return the economy to potential output without worsening inflation,fiscal policy used to close and expansionary gap by Jins JAMES e-mail jinsjames1@gmail.com
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An expansionary gap is a negative output gap, which occurs when actual output is higher than potential output.
A reduction in government spending is consistent with a contractionary fiscal policy.
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Monetary policy is referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy involves raising interest rates in order to combat inflation. Monetary policy should be contrasted with fiscal policy, which refers to government borrowing, spending and taxation. More useful Information here: www.vinayakjobs.com .