The set of ﬁscal policies that would be most contractionary would be a(n)
A) increase in government spending and taxes.
B) decrease in government spending and taxes.
C) increase in government spending and a decrease in taxes.
D) decrease in government spending and an increase in taxes.

Question

Quizplus · Accepted Answer

Decreasing government spending and increasing taxes would be the most contractionary fiscal policy because it would reduce government spending while also taking more money out of the economy. This would lead to a decrease in aggregate demand, which would ultimately result in lower output and higher unemployment.

The Set of ﬁScal Policies That Would Be Most Contractionary