A contractionary fiscal policy
I. decreases a government budget deficit or increases a government budget surplus.
II. includes tax cuts.
III. may include discretionary cuts in transfer payments.

Question

A contractionary fiscal policy 
I. decreases a government budget deficit or increases a government budget surplus.
II. includes tax cuts.
III. may include discretionary cuts in transfer payments.

Quizplus · Accepted Answer

Contractionary fiscal policy refers to measures taken by the government to decrease aggregate demand and slow down economic growth. This can be achieved by decreasing government spending, increasing taxes, or a combination of both. In the case of decreasing government spending, discretionary cuts in transfer payments may be made. Tax cuts, on the other hand, would be expansionary fiscal policy. Therefore, options II and III cannot both be correct. Option I is correct because a contractionary fiscal policy would decrease the budget deficit or increase the budget surplus. Option III is correct because discretionary cuts in transfer payments are one way to decrease government spending. Thus, the correct answer is C.

A Contractionary Fiscal Policy