Contractionary fiscal policy includes

Question

Quizplus · Accepted Answer

Contractionary fiscal policy is used to decrease the level of aggregate demand in the economy. This can be achieved by decreasing government spending and/or increasing taxes. Option A involves increasing government purchases which would stimulate aggregate demand, making it an expansionary fiscal policy. Option B includes raising interest rates which is a monetary policy, not fiscal policy. Lastly, Option D involves decreasing taxes which would stimulate demand, making it an expansionary fiscal policy. Therefore, the only option that fits the description of contractionary fiscal policy is C - increasing taxes and decreasing government expenditures.

Contractionary Fiscal Policy Includes