Question

When the government decreases spending or increases taxes to slow economic expansion, the government is conducting: a contractionary fiscal policy. b contractionary monetary policy. c expansionary fiscal policy. d expansionary monetary policy. e neither monetary policy nor fiscal policy.

Answer 1

Answer:

The correct answer is option a.

Explanation:

Fiscal policy can be defined as a tool to make changes in the consumption and aggregate demand through government spending and tax revenue.

A contractionary policy is used to reduce aggregate demand. A reduction in spending by the government or an increase in taxes is are tools for contractionary fiscal policy.