Question

Which of the following fiscal policy action would cause the economy to contract?

Answer 1

Decreasing the money supply will cause the economy to contract. A fiscal policy is a vehicle that the government uses to adjust its income and expenditure levels. A government generates income by imposing taxes on its citizens. The levels of spending influence the nation's economy.  Government spending affects most economic sectors in a country. If there is lots of money to spend, the country's economy will expand, and vice versa. Prudent government spending is critical to a country's economy