An example of contractionary fiscal policy is
A) an increase in government expenditures,or an increase in taxes,or both.
B) a decrease in government expenditures,or a decrease in taxes,or both.
C) an increase in government expenditures,or a decrease in taxes,or both.
D) a decrease in government expenditures,or an increase in taxes,or both.
E) increasing government expenditures while holding taxes constant.

Question

Quizplus · Accepted Answer

Contractionary fiscal policy refers to a decrease in government spending and/or an increase in taxes, or both. Option D suggests a decrease in government expenditures or an increase in taxes or both, hence it is the correct choice. Options A and C suggest an increase in government expenditures or decrease in taxes or both, which is an expansionary fiscal policy. Option B suggests a decrease in government expenditures or a decrease in taxes, which is also an expansionary fiscal policy. Option E suggests an increase in government expenditures while holding taxes constant, which could be either expansionary or contractionary depending on the overall budget situation.

An Example of Contractionary Fiscal Policy Is