What is one consequence of contractionary fiscal policy?

Contractionary fiscal policy involves measures taken by the government to reduce its spending or increase taxes in order to decrease the budget deficit or control inflation. One significant consequence of implementing such policies is a decrease in the government deficit. When the government cuts back on spending or raises taxes, it can generate less debt and potentially create a surplus, leading to a reduction in the overall deficit.

This form of policy is often used in times of economic growth when inflation is a concern, aiming to cool down an overactive economy by limiting government budgets, which can ultimately result in a healthier fiscal position for the government. Lower deficits decrease the burden of future debt repayments and can improve public trust in the government’s financial management. Thus, the emphasis on reducing the deficit aligns directly with the goals and outcomes of contractionary fiscal measures.