Irresponsible Fiscal Policy Creates a Problem for the Central Bank

question 21

Multiple Choice

Irresponsible fiscal policy creates a problem for the central bank, since it may be

• A)blamed for slowing economic growth if it refuses to money-finance increased government spending
• B)blamed for higher inflation if it money-finances increased government spending
• C)forced to sell too many government securities
• D)forced to lower interest rates by open market sales
• E)both A)and B)

---

Definitions:

Beta Matching

A statistical method used for matching cases and controls in observational studies to reduce confounding and improve the estimation of treatment effects.

Social Dilemma

A situation in which individual decisions seeking personal benefit lead to worse outcomes for the whole group.

Public Goods Problems

Issues that arise from the provision of goods that are non-excludable and non-rivalrous, leading to potential free-riding and underinvestment.

Social Traps

Situations where a group of individuals, acting in their own self-interest, create conditions that are harmful to all of them in the long run.