Select the correct answer.
Under which type of policy does the government reduce its expenditures and increase tax rates?
A. contractionary monetary policy
B. contractionary fiscal policy
C. expansionary fiscal policy
D. expansionary monetary policy
Answer (2)
Contractionary fiscal policy involves the government reducing expenditures and increasing tax rates to combat inflation and stabilize the economy. This strategy decreases the money supply and consumer spending. By implementing such policies, the government aims to encourage long-term economic balance. ;
The correct answer is B. contractionary fiscal policy, which involves the government reducing its spending and increasing taxes to control inflation and stabilize the economy. This policy decreases the money supply and consumer spending to prevent economic overheating. Such measures help achieve long-term economic stability.
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