Question

Suppose Congress increases income taxes. This is an example of Question 23 options: expansionary fiscal policy. expansionary monetary policy. contractionary fiscal policy. contractionary monetary policy. g

Answer 1

Answer:

contractionary fiscal policy.

Explanation:

In Economics, fiscal policy can be defined as the use of government expenditures (spending) and revenues (taxation) in order to influence macroeconomic conditions such as Aggregate Demand (AD), inflation, and employment within a country. A fiscal policy is in relation to the "Keynesian macroeconomic theory" by John Maynard Keynes.

Basically, a fiscal policy affects combined demand through changes in government policies, spending and taxation which eventually impacts employment and standard of living plus consumer spending and investment.

A contractionary fiscal policy is a policy that is typically used by the government to reduce aggregate demand (AD) by decreasing government purchases and increasing income taxes.

An income tax is a tax on the money made by the employees working in a state. This type of tax is paid by workers with respect to the amount of money they receive as their wages or salary.

Generally, the government of a country may use a contractionary policy to slow down the economy when there's a a inflation and gross domestic product (GDP) is growing too.