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2 February, 23:11

Which fiscal policy would be the most contractionary? 
A. A $40 billion increase in taxes
B. A $50 billion increase in government spending
C. A $50 billion decrease in government spending
D. A $40 billion decrease in government spending and a $10 billion decrease in taxes

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Answers (1)
  1. 3 February, 01:14
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    Answer: Option (C) is correct.

    Explanation:

    Correct option: A $50 billion decrease in government spending would be the most contractionary fiscal policy.

    A. Increase the taxes by $40 billion is also a contractionary fiscal policy but it doesn't have a greater impact than decreasing the government spending by $50 billion.

    B. It is an expansionary fiscal policy.

    D. There are both expansionary fiscal policy by decreasing taxes by $10 billion and contractionary fiscal policy by decreasing government spending by $40 billion. But it doesn't have much impact as the option (C) is having.

    Therefore, Option (C) is having the most contractionary fiscal policy.
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