Contractionary fiscal policy would tend to make a budget deficit become:
A) Bigger
B) Smaller
C) A trade deficit
D) A trade surplus

Question

Quizplus · Accepted Answer

Contractionary fiscal policy is aimed at reducing aggregate demand, which means decreasing government spending and/or increasing taxes. This will lead to a decrease in the budget deficit (or an increase in the budget surplus) as government revenues increase and government spending decreases. Therefore, the best choice is B, which states that contractionary fiscal policy would make a budget deficit become smaller. Choices C and D are not relevant to the situation at hand.

Contractionary Fiscal Policy Would Tend to Make a Budget Deficit