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:

Maximum Output Level

The highest quantity of a good or service that can be produced efficiently with available resources and technology.

Profit Incentive

A profit incentive is a financial or material reward that motivates individuals or businesses to pursue certain actions or goals for economic gain.

Classical Theory

An economic theory that suggests that free markets operate under the laws of supply and demand and are self-regulating.

Employment

The condition of having paid work.