When does the government assume a contractionary fiscal policy position?

The government assume a contractionary fiscal policy when the economy is strong. When the economy is strong, prices increases as a result of fierce competition for resources. In this situation, the government will assume a contractionary fiscal policy by reducing its spending and by increasing tax. This position will normally create a surplus for the government: a surplus is the amount of taxes left over after government spending.

The correct answer is (b) the marginal contribution of labor decreases as the quantity of labor used in production increases;