The objective of a contractionary fiscal policy is to
A) reduce unemployment.
B) increase growth in output.
C) reduce inflation.
D) increase stagflation.

Question

Quizplus · Accepted Answer

The objective of a contractionary fiscal policy is to reduce inflation. This is achieved by decreasing government expenditures and/or increasing taxes, which reduces the amount of money in circulation and ultimately decreases demand for goods and services, leading to a decrease in prices. The other choices are incorrect because contractionary fiscal policy does not aim to increase growth in output, reduce unemployment, or increase stagflation.

The Objective of a Contractionary Fiscal Policy Is to