An Appropriate Fiscal Policy for Severe Demand-Pull Inflation Is

question 126

Multiple Choice

An appropriate fiscal policy for severe demand-pull inflation is

• A)an increase in government spending.
• B)depreciation of the dollar.
• C)a reduction in interest rates.
• D)a tax rate increase.

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Definitions:

Interest Rate

The cost of borrowing money or the return on saved or invested money, expressed as a percentage of the principal.

Saving and Investment

The act of setting aside income for future use and allocating it to instruments expected to generate returns over time

Nominal-Wage Rigidity

The situation where nominal wages are slow to adjust to changing economic conditions, affecting employment and economic dynamics.

Classical Self-Correction Mechanism

A theory suggesting that free markets are capable of automatically adjusting to and correcting economic imbalances.