Contractionary ﬁscal policy would tend to make a budget deﬁcit become
A) bigger.
B) smaller.
C) a trade deﬁcit.
D) a trade surplus.

Question

Quizplus · Accepted Answer

Contractionary fiscal policy involves decreasing government spending and/or increasing taxes in order to reduce aggregate demand in the economy. This reduction in spending and/or increase in taxes will likely lead to a decrease in the budget deficit or even a budget surplus, making the deficit smaller. Therefore, the correct answer is B.

Contractionary ﬁScal Policy Would Tend to Make a Budget Deﬁcit