Answer :
To understand which category increases in taxes fall under when aimed at achieving macroeconomic goals, let's define each of the options provided:
1) Expansionary monetary policy:
Expansionary monetary policy is implemented by central banks and aims at increasing the money supply and lowering interest rates. This is often done by central banks through actions such as purchasing government bonds, reducing the reserve requirement for banks, or lowering the target interest rate. The goal is to stimulate economic growth by encouraging more borrowing and spending.
2) Contractionary monetary policy:
Contractionary monetary policy is the opposite of expansionary policy. It involves decreasing the money supply and increasing interest rates. This is done by central banks through actions such as selling government bonds, increasing the reserve requirement for banks, or raising the target interest rate. The goal of this policy is to slow down economic growth to prevent inflation.
3) Expansionary fiscal policy:
Expansionary fiscal policy involves government actions to stimulate the economy through increased government spending and/or decreased taxes. The intention is to put more money into consumers' and businesses' hands to encourage spending and investment, leading to economic growth.
Increases in taxes that are aimed at achieving macroeconomic goals can actually slow down an economy by reducing consumers' disposable income and discouraging spending and investment. This kind of action falls under the umbrella of contractionary fiscal policy, which is not listed in the options provided. Contractionary fiscal policy is typically used to cool down the economy when it is growing too fast and inflation is a concern.
None of the options given (1, 2, or 3) correctly identify the policy action that involves increases in taxes. The right answer would be 'contractionary fiscal policy,' but since this option is not listed, none of the provided options is correct for describing increases in taxes aimed at macroeconomic goals.
