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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Business

Toby Farrell

7 October, 03:09

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)

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Kaylie Kaufman · Answer 1

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.

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

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