6. Implementing fiscal policy Aa Aa Suppose the economy had been producing at th

Question

6. Implementing fiscal policy Aa Aa Suppose the economy had been producing at the natural n following are discretionary fiscal policies that could bring the economy closer to the natural rate of output? Check all that apply A tax increase Raising interest rates Additional spending on bridge repairs A reduction in spending on new road construction In this example, is the discretionary fiscal policy needed to bring the economy closer to the natural rate of output an example of expansionary or contractionary fiscal policy? O Contractionary O Expansionary

Explanation / Answer

Consider the given problem, here to move beck the economy closer to “natural rate of output”, we need to “increase taxes” or to “reduce the spending on new road construction”, so (1) and (4), be the possible option.

So, here the fiscal policy is an example of “contractionary fiscal” policy.

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