ACCA BT · Chapter 3 · Question 10 of 11
Which of the following is an example of contractionary fiscal policy?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Increasing income tax rates while keeping government spending unchanged
Explanation
Fiscal policy concerns government taxation and spending. Raising taxes without increasing spending withdraws demand from the economy, so it is contractionary. Changing interest rates and open market operations in government bonds are monetary policy tools. Increasing government spending is expansionary fiscal policy.
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