Answer: Raising taxes and reducing government expenditures

**Explanation:** - **Option A** is correct because raising taxes and reducing government spending are characteristic of a contractionary fiscal policy. This approach is typically employed when an economy is at full employment, and wages and prices are rising too rapidly. By reducing spending and increasing taxes, the government aims to curb inflationary pressures. - **Option B** is incorrect because lowering taxes and increasing government spending are indicative of an expansionary fiscal policy. Such measures are designed to stimulate economic growth by boosting aggregate demand through higher disposable income and increased public investment. - **Option C** is incorrect because while reducing government spending is contractionary, lowering taxes is expansionary. Without knowing the relative magnitudes of these actions, it is unclear whether the net effect is expansionary or contractionary. Expansionary policies often involve tax cuts to increase disposable income and stimulate demand, whereas contractionary policies focus on reducing spending to control inflation.

Author: LeetQuiz Editorial Team