-The effect of a contractionary fiscal policy upon the equilibrium level of real output is substantially the same as a(n):
A)decrease in saving
B)increase in exports
C)increase in consumption
D)increase in investment
E)increase in saving

Question

-The effect of a contractionary fiscal policy upon the equilibrium level of real output is substantially the same as a(n):
A)decrease in saving 
B)increase in exports 
C)increase in consumption 
D)increase in investment 
E)increase in saving

Quizplus · Accepted Answer

A contractionary fiscal policy, which typically involves increasing taxes or decreasing government spending, leads to a decrease in aggregate demand. This is similar to the effect of an increase in saving, as both actions result in less money being circulated in the economy, thereby reducing consumption and investment, and ultimately leading to a lower equilibrium level of real output.

-The Effect of a Contractionary Fiscal Policy Upon the Equilibrium