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What is expansionary policy and contractionary policies of the central bank What effect does it have to slow down the economy and kick start a recession hit economy.
ax policy is formed by the decisions of the public authorities in the area of taxation. It helps finance public spending, redistribute income and, depending on economic conditions, the consumption and growth community. Monetary policy is the work of the monetary authority (the European Central Bank, the Fed ...). The objectives of monetary policy are both the stability of prices and the stimulation of economic activity. One of the main instruments of monetary policy control is to vary interest rates.
Basically Fiscal Policies are the policy decisions made by the Government. And Monetary Policies are those by the Central Bank.
One of the main Fiscal Policy Tools is Taxation ; Some others are Utility Charges, Fines and Penalties etc. Main Tools of Monetary Policy are Repo Rate, Reverse Repo Rate, Surety Depository Requirements etc.
Expansionary Policies tend to pump up money in the economy by easing the policy tools. They curve recession but flame inflation too.
Contractionary just opposite.
Thanks a lot..
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