Which of the Following Is an Appropriate Fiscal Policy Prescription

question 24

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:

Contribution Format

A type of income statement format that separates variable costs from fixed costs to highlight the contribution margin.

Break-even Point

The financial point at which total revenue exactly matches total costs; neither profit nor loss is realized.

Dollar Sales

The total revenue generated from the sale of goods or services, expressed in monetary units.

Contribution Margin Ratio

A financial indicator demonstrating the proportion of sales income that is not absorbed by variable expenses, hence aiding in the coverage of fixed costs.