Austerity generally refers to a policy tool used by central banks to achieve macroeconomic objectives.
This is when the economy is overheating, aggregate demand is greater than aggregate supply, inflation in the economy, the use of tight monetary policy.
The popular meaning is: THE government thinks there is too much money in circulation and wants to reduce the monetary policy adopted a bit!
The tight monetary policy generally means that when the economy has inflation, the central government will raise interest rates to curb consumption growth and control the excessive growth of prices, so as to control inflation.
The central bank will adopt a tight monetary policy in order to reduce investment and compress demand by controlling the rise.
The decline of aggregate demand will make aggregate supply and demand tend to balance and decrease.
1. Expansionary Expansionary monetary policy is to stimulate aggregate demand by increasing the growth rate of money supply. Under this policy, credit is easier to obtain and interest rate will be reduced.
Thus, an expansionary monetary policy is most appropriate when aggregate demand is low relative to the productive capacity of the economy.
2. Contractionary monetary policy is to reduce the level of aggregate demand by cutting the growth rate of money supply. Under this policy, it is more difficult to obtain credit and the interest rate increases accordingly.
Therefore, when inflation is serious, it is more appropriate to adopt a contractionary monetary policy.
