Chapter 20, Problem 5MCQ

To determine

The correct policy for cut in income tax.

Answer to Problem 5MCQ

From the available options, the correct option is an expansionary fiscal policy.

Explanation of Solution

A cut in income tax or rebate in income tax comes under the expansionary fiscal policy because it considers an increase in government spending on projects or schemes which improve the life of society or offer better infrastructure facilities such as tax cuts, rebates, etc.

Here, the correct option is a (an expansionary fiscal policy) and all other options are incorrect because contractionary fiscal policy increase the tax rate and monetary policy increase or decrease the supply of money with the control of interest rates.

Economics Concept Introduction

Introduction: Fiscal policy is a policy through which government spending and tax policies are used to make the economic conditions better.