Which of the following is an appropriate fiscal policy response if the economy is in a state of rising inflation? Contractionary fiscal policy by decreasing government spending and taxes.Expansionary fiscal policy by increasing government spending and taxes.Contractionary fiscal policy by decreasing government spending and increasing taxes.Expansionary fiscal policy by increasing government spending and lowering taxes. 15. Which of the following is an appropriate fiscal policy response if the cconomy is ina state of rising inflation?A. Contractionary fiscal policy by decreasing government spending and taxes.B. Expansionary fiscal policy by increasing govermment spending and taxes.C. Contractionary fiscal policy by decreasing government spending and increasingtaxes.D. Expansionary fiscal policy by increasing govermment spending and loweringtaxes.

The fiscal policy is the policy of the government in the economy to control the spending levels of money in the economy. The fiscal policy makes use of the adjustments in the tax rate as well as the government spending in order to make changes in the spending levels of consumers in the economy. There are mainly two different fiscal policies which are expansionary and contractionary. The expansionary as the name suggests intends to increase the spending levels whereas the contractionary is to reduce the spending levels.When the economy is in a state of rising inflation, it means that the economy is experiencing a higher supply of money and spending. Thus, the fiscal policy should be such that the people will reduce their spending and cause the inflationary pressure to decrease in the economy. The appropriate fiscal policy for this purpose will be the contractionary fiscal policy which will increase the tax rate in the economy as well as reduce the level of government spending in the economy. Thus, the money with people will decrease as more tax amount is paid out of their money and lower levels of government spending reduce the availability of money in the economy. Thus, the policy will reduce the money available for spending and reduce the demand and result in lower levels of inflation in the economy. Thus, the correct answer is option ‘c’.