- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 3. Fiscal Policy
- Subject 2. Roles and Objectives of Fiscal Policy
CFA Practice Question
Which of the following is an example of a contractionary fiscal policy?
II. Increased taxes
III. Decreased taxes
IV. Increased spending on highways
V. A decrease in the money supply
I. Increased defense spending
II. Increased taxes
III. Decreased taxes
IV. Increased spending on highways
V. A decrease in the money supply
Correct Answer: II
An increase in taxes reduces consumption spending by households. This decreases output through the multiplier effect.
User Contributed Comments 6
| User | Comment |
|---|---|
| Khadria | "V. a decrease in the money supply" is a contractionary "monetary" policy |
| hoyleng | V is a monetary policy, not a fiscal policy. |
| gill15 | V is a monetary policy anybody else...make it shorter |
| ashish100 | V -> Monetary |
| khalifa92 | V Monet. |
| Mheaton37 | V = Mon. |