Question

In the United States, the government uses expansionary and contractionary fiscal policies to affect conditions in the economy. Select all of the fiscal policies in the list that would be contractionary fiscal policies. (CS 23)
Question 18 options:



increase tax revenue




lower inflation




lower federal spending




end a recession




raise total demand for goods




reduce tax rate

Answer 1

automatic stabilizers:

tax and spending rules that have the effect of slowing down the rate of decrease in aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation

contractionary fiscal policy:

fiscal policy that decreases the level of aggregate demand, either through cuts in government spending or increases in taxes

discretionary fiscal policy:

the government passes a new law that explicitly changes overall tax rates or spending levels with the intent of influencing the level or overall economic activity

expansionary fiscal policy:

fiscal policy that increases the level of aggregate demand, either through increases in government spending or cuts in taxes