Which Combination of Fiscal Policy Actions Would Be Most Contractionary

question 8

Multiple Choice

Which combination of fiscal policy actions would be most contractionary for an economy experiencing severe demand-pull inflation?

• A)increase taxes and government spending
• B)decrease taxes and government spending
• C)increase taxes and decrease government spending
• D)decrease taxes and increase government spending

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Definitions:

Factory Overhead

All indirect costs associated with manufacturing, including utilities, rent for the manufacturing space, and salaries of non-direct labor, accumulated and allocated to units produced.

Baker's Wages

Refers to the compensation paid to bakery workers for their labor, considered as direct labor costs in production.

Product Costs

All costs incurred to acquire or manufacture a product, including direct materials, direct labor, and manufacturing overhead expenses.

Period Costs

Expenses that are not directly tied to the production of goods, such as sales and marketing expenses, which are expensed in the period they are incurred.