Contractionary fiscal policy includes:
A) decreasing taxes.
B) decreasing the money supply.
C) decreasing government expenditures.
D) increasing government expenditures.

Question

Quizplus · Accepted Answer

Contractionary fiscal policy aims to reduce aggregate demand and control inflation. decreasing government expenditures will reduce the amount of money available for spending and cause a decrease in aggregate demand, resulting in lower inflation. However, decreasing taxes or increasing government expenditures will lead to an increase in aggregate demand and therefore not be contractionary policies. Decreasing the money supply is a monetary policy action and not a fiscal policy action.

Contractionary Fiscal Policy Includes