Question

Government and the Economy Unit Test
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Question
Which of the following is an action of a contractionary fiscal policy?(1 point)
Responses

increasing overall aggregate demand by increasing government spending
increasing overall aggregate demand by increasing government spending

increasing overall aggregate demand by reducing taxes for individuals or businesses
increasing overall aggregate demand by reducing taxes for individuals or businesses

decreasing overall aggregate demand by decreasing government spending
decreasing overall aggregate demand by decreasing government spending

decreasing overall aggregate demand by reducing taxes for individuals or businesses
decreasing overall aggregate demand by reducing taxes for individuals or businesses
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Answer 1

The correct action of a contractionary fiscal policy is:

**decreasing overall aggregate demand by decreasing government spending.**

Contractionary fiscal policy is aimed at reducing inflationary pressures in the economy, typically by cutting government spending or increasing taxes.