A Contractionary Fiscal Policy Is Likely to

question 125

Multiple Choice

A contractionary fiscal policy is likely to

• A) reduce a government budget deficit and reduce borrowing by the Treasury.
• B) increase a government budget deficit and increase borrowing by the Treasury.
• C) reduce a government budget deficit and increase borrowing by the Treasury.
• D) increase a government budget deficit and reduce borrowing by the Treasury.

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Definitions:

Burden of the Tax

The distribution of the financial impact of a tax between buyers and sellers in a market.

Deadweight Loss

An economic inefficiency resulting from the failure to achieve or the impossibility of achieving equilibrium in the market for a particular good or service.

Supply Curves

Graphical representations showing the relationship between the price of a good and the quantity of that good that suppliers are willing to provide.

Tax Revenue

The earnings obtained by governments from tax collection.