Contractionary fiscal policy is a macroeconomic strategy used by governments to reduce economic growth by decreasing government spending and increasing taxes. The goal is to limit the amount of money in circulation, reduce aggregate demand, and control inflation when the economy is growing too quickly or overheating. This policy may include cutting government expenditures on welfare programs, subsidies, and public employees, as well as raising taxes on individuals and businesses. Key objectives of contractionary fiscal policy include:

• Reducing inflation by limiting the money supply and lowering price levels.
• Maintaining an optimal level of unemployment to keep the labor market balanced.
• Reducing national debt and government budget deficits.
• Controlling economic growth to ensure it progresses at a sustainable and steady pace.

While contractionary fiscal policy can slow economic growth and reduce disposable income for individuals, it is used to prevent problems like excessive inflation or fiscal crises that can arise from an overheated economy.

In short, contractionary fiscal policy involves government actions to reduce overall demand in the economy by cutting spending and raising taxes to cool down inflation and stabilize economic growth.