Question

What is the effect of contractionary fiscal policy on the money supply?

A) it depends
B) doesn’t affect it
C) decreases it
D) increases it

Answer 1

C. Decreases money supply

Step-by-step explanation:

The contractionary fiscal policy happens when the central bank of a particular nation raises its interest rates to prevent inflation.This will result to a decrease in money supply in the economy.The government expenditures are cut-down and there will be increased taxes causing the budget surplus of the government to increase.