What is the term for a decrease in government expenditure or taxes?

The correct answer, austerity, refers to a set of economic policies implemented by governments to reduce budget deficits during periods of financial crisis or economic downturns. Austerity measures typically involve cutbacks in government expenditure and can also include tax increases. The purpose of these policies is to stabilize the economy by reducing public spending and improving government finances, which can ultimately restore investor confidence and promote economic growth in the long run.

In the context of government financial management, austerity is often contrasted with expansionary fiscal policies, which aim to stimulate the economy by increasing expenditures or cutting taxes. Understanding austerity is vital as it provides insight into how governments respond to economic challenges and manage public funds. The other terms listed do not relate directly to a reduction in government spending or taxes; inflation, for example, is a rise in prices, a deficit refers to the situation where expenditures exceed revenues, and a subsidy is a financial assistance provided by the government to support a specific sector.