When congressional policymakers wish to reduce aggregate demand, they might enact:
A) contractionary fiscal policy.
B) expansionary fiscal policy.
C) contractionary monetary policy.
D) expansionary monetary policy.

Question

Quizplus · Accepted Answer

Contractionary fiscal policy involves reducing government spending and increasing taxes in order to decrease aggregate demand. This is done to combat inflationary pressures in the economy. Expansionary fiscal policy, on the other hand, involves increasing government spending and cutting taxes to stimulate economic growth and increase aggregate demand. Monetary policy involves manipulating the money supply and interest rates, and can also be either contractionary or expansionary. However, the question specifically asks for a policy to reduce aggregate demand, which can be best accomplished through contractionary fiscal policy.

When Congressional Policymakers Wish to Reduce Aggregate Demand, They Might