What is the purpose of contractionary fiscal policy? Fiscal policy cannot affect

ID: 1127527 • Letter: W

Question

What is the purpose of contractionary fiscal policy?

Fiscal policy cannot affect the economy.

Which is the term that refers to inflation where money supply increases cause price increases?

Demand-pull inflation.

During a recession, Keynesians would recommend:

expansionary monetary policy that raises interest rates.

An inflationary gap occurs when:

equilibrium income is below (less than) autonomous expenditures.

On most points along a short-run Phillips Curve, expectations of inflation are generally:

equal to actual inflation.

A policy designed to change government spending and (or) taxes, either to stimulate or slow down the economy, is called Fiscal Policy.

False

If an economy is experiencing inflation, one fiscal policy that might help reduce inflation is:

To reduce inflationary pressure.

(1) (A)

Contractionary fiscal policy decreases aggregate demand and reduces inflation.

(2) (D)

Demand pull inflation takes place when money supply rises, increasing aggregate demand faster than aggregate supply.

(3) (C)

Expansionary monetary policy lowers interest rates, boosts investment and consumption and increases aggregate demand during recession.

(4) (D)

Inflationary (Recessionary) gap exists when equilibrium output is higher (lower) than potential output.

NOTE: As per Chegg answering policy, first 4 questions are answered.

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