A contractionary fiscal policy will reduce a government budget deficit or increase a government budget surplus and reduce borrowing by the Treasury.

Question

Quizplus · Accepted Answer

A contractionary fiscal policy involves reducing government spending and/or increasing taxes, which leads to a decrease in the budget deficit or an increase in the budget surplus. The reduction in borrowing by the Treasury occurs as a result of the decrease in the deficit/surplus.

A Contractionary Fiscal Policy Will Reduce a Government Budget Deficit