When fiscal policy makers wish to reduce aggregate demand, they could enact:

Question

Quizplus · Accepted Answer

Contractionary fiscal policy involves decreasing government spending and/or increasing taxes, which reduces disposable income and therefore decreases consumption, lowering aggregate demand. Expansionary fiscal policy, on the other hand, involves increasing government spending and/or reducing taxes, which increases disposable income and consumption, leading to an increase in aggregate demand. Contractionary and expansionary monetary policies involve the manipulation of the money supply and interest rates, respectively, and are used to influence inflation and overall economic growth rather than directly reducing aggregate demand.

When Fiscal Policy Makers Wish to Reduce Aggregate Demand, They