Contractionary fiscal policy is typically used to
A) combat inflation stemming from an overheated economy.
B) combat a recession due to deficient demand.
C) restore the balance of payments.
D) balance the federal budget.

Question

Quizplus · Accepted Answer

Contractionary fiscal policy involves decreasing government spending and/or increasing taxes in order to reduce the amount of money in circulation and slow down economic growth. This is typically used to combat inflation, which occurs when an economy becomes overheated and prices rise at unsustainable levels. By reducing demand and slowing down economic activity, contractionary fiscal policy can help bring inflation under control. It is not typically used to combat a recession or restore the balance of payments, and it may or may not be effective in balancing the federal budget depending on the specific policies implemented.

Contractionary Fiscal Policy Is Typically Used to