Each of the following is an expansionary fiscal policy EXCEPT:
A)an increase in government transfers.
B)an increase in government purchases.
C)an increase in tax rates.
D)a reduction in marginal tax rates.

Question

Quizplus · Accepted Answer

An increase in tax rates is a contractionary fiscal policy, as it reduces disposable income and thereby decreases consumer spending and aggregate demand. The other options, increases in government transfers, government purchases, and reductions in marginal tax rates, all lead to increased disposable income and higher consumer spending, making them expansionary fiscal policies.

Each of the Following Is an Expansionary Fiscal Policy EXCEPT