1) Under this view, what would normally be considered contractionary fiscal policy
would instead be expansionary.
Like prices the surplus shock also reduces the interest rate because the demand for loanable funds by the government decreases due to the contractionary fiscal policy
, pushing down its price.
If, instead, the country in question is experiencing an upturn, with pressure on production capacity, and the objective of a contractionary fiscal policy
is to reduce economic activity, it will be more appropriate to use the instrument which is assumed to have the strongest negative effect on the real economy.
To counter risks of further currency depreciation, which might endanger financial stability and increase inflation, the National Bank of Hungary (NBH) has not lowered policy rates since January 2009, despite the deepening recession and contractionary fiscal policy
Conversely, contractionary fiscal policy
may not restrict activity, and might even have a salutary effect on output (Auerbach 2002: 35).
This is an example of a scenario where a contractionary fiscal policy
starting in a boom situation affects output and employment in a more adverse way than if starting in a recession.
In such circumstances a neutral or slightly contractionary fiscal policy
setting would be more comfortable.
22] = 0; this situation indicates that a contractionary fiscal policy
should be adopted, as foreign reserves are above their target, and a currency devaluation should be adopted, as output is above its target.
The recessions themselves tend to coincide with adverse output shocks and contractionary fiscal policy
Monetary policy is unlikely to turn restrictive given the contractionary fiscal policy
of higher taxes and lower spending recently passed in Washington.
Less contractionary fiscal policy
after 2013 and continued expansionary monetary policy, normalising as unemployment falls, mean that resource utilisation will gradually increase and return to balance in 2017.
expansionary fiscal policy which is either reduction in taxes or increase in government spending and contractionary fiscal policy
which is either increase in taxes or reduction in government spending.
Recent years' very contractionary fiscal policy
will be relaxed this year and next, while monetary policy will remain highly expansionary.
The second aspect of continuity is the persistence of a contractionary fiscal policy
despite the rise of recessionary tendencies since the early 1990s.
When net lending increases without the taking of an}- active political measures, this can be described as a passive contractionary fiscal policy