Inflation has risen sharply above the target rate in Canada. In response, the Bank of Canada has increased its policy interest rate. Simultaneously, the federal government has announced a reduction in public spending while maintaining current tax rates to reduce the budget deficit.
It can be inferred from this scenario that, in response to rising inflation,
both monetary policy and fiscal policy are contractionary.
monetary policy is contractionary whilst fiscal policy is expansionary.
monetary policy is expansionary whilst fiscal policy is contractionary.
both monetary policy and fiscal policy are expansionary.
