Which policy is primarily aimed at reducing economic activity to control inflation?

The correct answer is focused on the concept of controlling inflation through a reduction in economic activity. Contractionary policy is specifically designed to decrease the overall level of demand in the economy, which in turn helps to control inflation. This kind of policy often involves reducing government spending or increasing taxes, which lowers disposable income and thus consumer spending. Additionally, contractionary monetary policy can include raising interest rates, making borrowing more expensive and saving more attractive, leading to reduced consumption and investment.

This approach is often used when the economy is growing too quickly, leading to rising prices (inflation). By intentionally slowing down economic activity, contractionary policy aims to temper inflationary pressures and stabilize prices.

On the other hand, stabilization policy encompasses a broader range of actions that may include both contractionary and expansionary measures depending on the economic context. Expansionary policy focuses on stimulating economic growth by increasing demand, which may lead to higher inflation if not managed carefully. Normative policy, meanwhile, relates to value judgments about what the economy should be like, rather than practical actions to control inflation.