Economics · Fiscal Policy
The government plans to reduce its fiscal deficit by cutting non-essential expenditures and increasing tax revenues. What is the intended primary impact of these contractionary fiscal measures on an overheating economy?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1To maintain absolute fiscal neutrality with no net effect on economic indicators
- 2To rapidly accumulate public debt and worsen macroeconomic instability
- 3To induce hyperinflation and expand the budget deficit
- 4To curb inflation and stabilize the economy by lowering aggregate demand✓
Correct answer
To curb inflation and stabilize the economy by lowering aggregate demand
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