Contractionary fiscal policy is so named because it:
A)involves a contraction of the nation's money supply.
B)necessarily reduces the size of government.
C)is aimed at reducing aggregate demand and thus achieving price stability.
D)is expressly designed to contract real GDP.

Question

Quizplus · Accepted Answer

Contractionary fiscal policy is aimed at reducing aggregate demand, which can result in decreased spending, lower economic growth, and ultimately achieve price stability. This can be achieved through measures such as increasing taxes or reducing government spending. The policy is not designed to explicitly contract real GDP, but it can have that effect in the short-term. It does not necessarily involve a contraction of the nation's money supply or necessarily reduce the size of government.

Contractionary Fiscal Policy Is So Named Because It