Economics • Indian EconomyEasy
Which of the following measures is generally characterized as 'Contractionary Fiscal Policy'?
A. Increasing government infrastructure spending and reducing personal income tax rates.
B. Reducing government expenditure and increasing tax rates to cool down an overheating economy.✓ Correct Answer
C. Expanding welfare transfers and lowering central bank policy interest rates.
D. Executing large-scale open market purchases of government securities.
💡 Solution & Explanation
Contractionary fiscal policy involves deliberate reductions in government spending and increases in taxation to dampen aggregate economic demand and curb inflationary pressures during boom periods. Expansionary measures, conversely, stimulate economic activity through increased outlays and tax cuts. Fiscal policy tools managed by the ministry of finance are central to Indian economy preparation.
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