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

Question

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 correct response 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.

Contractionary fiscal policy typically involves increasing taxes and/or decreasing government spending, which can result in a slowdown of the economy. This is often avoided by the federal government, especially during times when economic growth is desired, as it can lead to negative impacts on economic activity and overall welfare.