A decrease in taxes is one way to pursue a contractionary ﬁscal policy because it will make government
revenues contract.

Question

Quizplus · Accepted Answer

A decrease in taxes would actually stimulate economic growth by putting more money in consumers' pockets, which is contrary to the objectives of contractionary fiscal policy. In fact, an increase in taxes is generally used as a tool to pursue contractionary fiscal policy, as it reduces disposable income and thus lowers aggregate demand.

A Decrease in Taxes Is One Way to Pursue a Contractionary