what-are-the-effects-of-contractionary-fiscal-policy-on-aggregate-demand-when-go

Question

What are the effects of contractionary fiscal policy on aggregate demand when government spending is reduced and taxes are increased?

Accepted Answer

Aggregate demand decreases, leading to lower price levels.

Answer

Aggregate demand remains unchanged, stabilizing price levels.

Answer

Aggregate demand increases, stabilizing price levels.

Answer

Aggregate demand increases, leading to higher price levels.