What is meant by a contractionary budget stance?

A contractionary budget stance refers to a situation in which the government aims to reduce its level of spending or increase taxes, with the goal of decreasing overall economic activity. This approach is typically adopted during periods of high inflation when the government seeks to cool down an overheating economy. By reducing demand, a contractionary budget can help to stabilize prices.

In this context, the government may reduce expenditures on public services or infrastructure projects, or it may increase taxation, leading to lesser disposable income for consumers and businesses. As a result, consumption and investment may decline, which is the essence of decreasing economic activity.

The focus of the other choices is on increasing activity, maintaining balance, or stimulating growth, which contrasts with the idea of a contractionary stance. In summary, a contractionary budget stance directly aims at curtailing economic expansion, making option C the correct interpretation.