CFA Practice Question

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CFA Practice Question

Which of the following is an example of a contractionary fiscal policy?

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.
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