Question on: JAMB Economics - 2002

Excess demand inflation occurs when aggregate demand exceeds aggregate supply, leading to rising prices. Contractionary policies aim to reduce aggregate demand, thereby curbing inflation. * **Contractionary fiscal policy** involves measures like increased taxes or reduced government spending. These actions decrease the disposable income of households and reduce overall demand in the economy. * **Contractionary trade policy** involves measures like tariffs and quotas, aimed at reducing imports and potentially demand, but it is not a primary or effective tool for controlling excess demand inflation. * **Expansionary fiscal policy** (increased government spending or reduced taxes) and **expansionary monetary policy** (e.g., lowering interest rates, increasing the money supply) would stimulate demand, worsening the inflationary pressure.