What is the effect of contractionary fiscal policy?
Practice Questions
Q1
What is the effect of contractionary fiscal policy?
Increased inflation
Decreased unemployment
Reduced government spending
Increased consumer confidence
Questions & Step-by-Step Solutions
What is the effect of contractionary fiscal policy?
Step 1: Understand what contractionary fiscal policy means. It is when the government decides to spend less money.
Step 2: Recognize that reducing government spending can help lower inflation, which is when prices for goods and services go up.
Step 3: Be aware that while controlling inflation is good, spending less can also lead to higher unemployment, meaning some people may lose their jobs.
