During contractionary fiscal policy, what is a key action taken by Congress?

During contractionary fiscal policy, a key action taken by Congress is raising taxes. This approach is designed to reduce overall demand in the economy, as higher taxes can lead to decreased disposable income for consumers and businesses. When individuals have less money to spend, consumption tends to drop, which can help cool off an economy that may be overheating or experiencing inflation.

Raising taxes also allows the government to reduce deficits by increasing revenue, which can stabilize the economy. This action contrasts with expansionary fiscal policy, where the government might lower taxes or increase spending to stimulate growth. By understanding the purpose behind contractionary measures, it becomes clear how raising taxes fits into efforts to manage economic cycles effectively.