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Question 13 (3 points) Which fiscal policy is likely to reduce the governments budget deficit? Contractionary fiscal policy
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Contractionary fiscal policy is likely to reduce the government's budget deficit.

Contractionary fiscal policy means that fiscal policy which involves increasing taxes, decreasing government expenditures or both. Due to inflationary pressure it is necessary to increase in taxes so that households may faces issue regarding spending on income. When households does not have enough income for disposal then consumption is decreases .Due to higher tax profit is reduces and this tends to cutting down of investment expenditures.

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