Question

Why is contractionary fiscal policy often not used by the federal government?(1 point)

The increase in individual and corporate tax rates as well as government spending cause a slow down in the private sector economy.

Decreases in federal government revenue and increasing expenses cause large deficits and adds to the national debt, which put a strain on the economy.

Individual and corporate tax rates increase while spending for social programs decreases, both of which would lead the economy to slow down or contract.

The increased individual and corporate income taxes overheats the economy and increases inflation.

Answer 1

The correct answer is:

Individual and corporate tax rates increase while spending for social programs decreases, both of which would lead the economy to slow down or contract.

Reason: Contractionary fiscal policy (higher taxes, lower spending) would restrain aggregate demand, slow growth and raise unemployment, and is politically unpopular—so governments avoid it except when needed to fight inflation.