Which best explains how contractionary policies can hamper economic growth?

A. They increase consumer demand.

B. They reduce taxes which raises deficits.

C. They reduce disposable income.

D. They can increase inflation.

Answer: C. They reduce disposable income.

Explanation: Contractionary policies — like increasing taxes or interest rates — directly reduce the amount of cash consumers and businesses have to spend. Higher interest rates mean that borrowing is more expensive, which cuts consumer spending and business investment, and ultimately slows economic growth.

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