6
QuizMultiple Choice

5.1 Fiscal Policy: Taxes

Question 6 • IL-Economics

Which best explains how contractionary policies can hamper economic growth?

Answer
A
They increase consumer demand.
B
They can increase inflation.
C
They reduce taxes which raises deficits.
D
They reduce disposable income.

Explanation

Contractionary policies are designed to slow economic activity, often by raising taxes or reducing government spending. Higher taxes leave households with less disposable income to spend, which can lower consumer demand and output, hampering economic growth. Therefore, “They reduce disposable income” is the best answer.

AI-written and checked against the verified answer.

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