Question

In the United States, the government uses expansionary and contractionary fiscal policies to affect conditions in the economy. Select all of the fiscal policies in the list that would be contractionary fiscal policies.

lower federal spending


end a recession


lower inflation


reduce tax rate


raise total demand for goods


increase tax revenue

Answer 1

lower federal spending,

increase tax revenue,

lower inflation. (as a result of contractionary fiscal policy)

Step-by-step explanation:

Contractionary fiscal policy is a type of policy than involves increasing taxes and reducing government spending in order fight inflation. When government increases taxes, households have less money to spend, and there is an increased revenue from those taxes. Businesses also, due to increased taxes, need to reduce their investment and expenditures.

Also, when government decreases spending, it decreases it's GDP (Gross Domestic Product). High inflation indicates that there is an inflationary pressure which indicates that there is a need for a contractionary fiscal policies.