A typical contractionary fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes.
What is contractionary fiscal policy?
Contractionary fiscal policy can be regarded as a policy whereby government taxes more than it spends, this can be done through increasing taxable rates as well as decreasing spending.
It is been utilized during times of economic prosperity and it is A typical contractionary fiscal policy that allows government to decrease the level of aggregate demand, through increases in taxes.
One common example of debt-based contractionary fiscal policy that is common in the government setting is the increasing taxes.
For instance, VAT, can be used in reducing the budget deficit even in the absence of cutting government spending.
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