Which of the Following Is an Appropriate Fiscal Policy Prescription

question 146

Multiple Choice

Which of the following is an appropriate fiscal policy prescription that addresses the inflation that occurs when the economy is above potential GDP?

• A)Decreasing taxes to protect consumers from the effects of inflation
• B)Increasing taxes to reduce aggregate demand
• C)Increasing government spending to provide some of the goods that consumers can no longer afford at the higher prices
• D)Decreasing government spending to cause a decrease in the demand for money
• E)Increasing transfer payments to poor people,who are hurt the most by the inflation

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Definitions:

MR

Marginal Revenue, the additional income generated from selling one more unit of a product or service.

Perfectly Elastic

Perfectly elastic refers to a situation where the quantity demanded or supplied responds infinitely to changes in price.

Perfectly Inelastic

A situation in which the quantity demanded or supplied of a good does not change in response to a change in price.

Elastic

Elastic refers to a situation where the demand for a product or service significantly changes in response to price changes.