The Government Decides to Reduce Its Expenditure by $250

Multiple Choice

The government decides to reduce its expenditure by $250. The multiplier in this economy is 4 and the tax rate is 22 percent. The net effect of this contractionary fiscal policy is to:

A) increase the budget deficit by $30.
B) increase the budget deficit by $220.
C) decrease the budget deficit by $30.
D) decrease the budget deficit by $220.