Contractionary fiscal policy a. includes cuts in government spending and increas

Question

Contractionary fiscal policy a. includes cuts in government spending and increases in taxes and is designed to slow down the economy. b. reduces aggregate demand and shifts the aggregate demand curve inward c. includes increases in government spending and decreases in taxes and is designed to stimulate the economy d. Both "a" and "b" The economy is "heating up" and price pressure is being reported. Which of the following would be appropriate? a. cutting taxes b. increasing taxes c. increasing government spending d. increasing government spending and cutting taxes A potential tradeoff for reducing pressure on price levels associated with contractionary fiscal policy is a. loss of output b. gain of output c. increase of aggregate demand d. stagflation

Explanation / Answer

37. both a and b

Fiscal policy instruments are taxes, government spending. Contractionary fiscal policy implies reduction in government spending or higher taxes which reduces aggregate demand and shift the curve inwards.

38. Increase taxes will reduce liquidity in the economy which will contain inflation.

39. loss of output as inward shift in demand curve reducesboth prices and output.

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