Fiscal Policy Quick Check

Question

2 of 52 of 5 Items
Question
Why is contractionary fiscal policy often not used by the federal government?(1 point)
Responses

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

Individual and corporate tax rates increase while spending for social programs decreases, both of which would lead the economy to slow down or contract.
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 increase in individual and corporate tax rates as well as government spending cause a slow down in the private sector economy.
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.

Answer 1

The most accurate response to the question "Why is contractionary fiscal policy often not used by the federal government?" would be:

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

This response highlights the potential negative consequences of contractionary fiscal policy, such as a slowdown of the economy, which can make it politically and economically challenging for governments to implement such policies.