Tax and Fiscal Policy Terms Contractionary Fiscal Policy - Policy enacted by the government that reduces output. Examples include raising taxes and decreasing government spending. Contractionary Monetary Policy - Policy enacted by the Fed that reduces the money supply and thus reduces output. Examples include selling government bonds, raising the reserve requirement, and raising the federal funds interest rate. Currency - Physical money used in an economy. Demand Deposits - Money in a bank that can be withdrawn at any time, that is, on demand. Deposits - Assets placed in a bank for storage and profit. Disposable Income - Income that can be spent after taxes. Expansionary Fiscal Policy - Policy enacted by the government that increases output. Examples include lowering taxes and increasing government spending. Expansionary Monetary Policy - Policy enacted by the Fed that increases the money supply and thus increases output. Examples include purchasing government bonds, lowering the reserve
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