Question

If the Parliament passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n): 
A. Political business cycle
B. Expansionary fiscal policy
C. Contractionary fiscal policy
D. Nondiscretionary fiscal policy

Answer 1

Answer:

The correct answer is option C.

Explanation:

Fiscal policy is a tool to stabilize fluctuations in the economy by making adjustments in government spending and tax rates. Fiscal policies can be classified into two types; contractionary and expansionary.  

Contractionary fiscal policy includes increasing taxes and reducing government spending to reduce inflation. Expansionary fiscal policy involves reducing taxes and increasing government spending to boost the economy.