Contractionary fiscal policy hinders economic growth Steps:

• Define economic growth as rising GDP via higher aggregate demand (AD) or supply.
• Assess each policy: expansionary options boost AD/supply; contractionary ones reduce it.
• Identify A, C, D as stimulatory (lending, low rates, subsidies increase spending/production).
• Spot B as contractionary (tax hike cuts consumption, lowers AD).

Why B is correct:

• Increasing VAT raises prices on goods, reducing consumer spending and disposable income, which contracts AD per the AD-AS model and slows GDP growth.

Why the others are wrong:

• A: Boosts credit availability, encouraging investment and consumption to raise AD.
• C: Lowers borrowing costs, stimulating investment/spending for higher growth.
• D: Provides incentives for innovation/production, enhancing long-run supply-side growth.

Final answer: B