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

Question

Quizplus · Accepted Answer

Contractionary fiscal policy aims to decrease the aggregate demand in the economy. Increasing taxes reduces people's disposable income, which reduces their purchasing power and, hence reduces their consumption, investment, and government expenditure. This decreases the aggregate demand in the economy.

Contractionary Fiscal Policy Includes