Which of the following is an example of a contractionary fiscal policy?
A) the Fed buying government securities in the open market
B) the federal government decreasing the marginal tax rate on incomes below $200,000
C) the federal government decreasing the amount of money spent on public health programs
D) the federal government reducing pollution standards to allow firms to produce more output

Question

Quizplus · Accepted Answer

Contractionary fiscal policy involves decreasing government spending or increasing taxes, both of which decrease aggregate demand in the economy. Option C is the only one that fits this definition, as it involves the federal government decreasing the amount of money spent on public health programs. Options A, B, and D are all examples of expansionary policies, as they involve increasing either the money supply or economic activity.

Which of the Following Is an Example of a Contractionary