Considering only its direct effect on income, contractionary fiscal policy tends to:
A)increase income and imports and lower the trade deficit.
B)increase income and imports and raise the trade deficit.
C)decrease income and imports and lower the trade deficit.
D)decrease income and imports and raise the trade deficit.

Question

Quizplus · Accepted Answer

Contractionary fiscal policy reduces government spending or increases taxes, leading to a decrease in overall income. Lower income typically results in reduced imports, which can help lower the trade deficit.

Considering Only Its Direct Effect on Income, Contractionary Fiscal Policy