Country Z is suffering from the effects of a negative supply shock.If the government's main goal is to return output to potential,then it will ________.If the government's main goal is to maintain low and stable inflation,then it will ________.

Question

Quizplus · Accepted Answer

If the government's main goal is to return output to potential, it will pursue expansionary fiscal policy to increase aggregate demand and boost output.
If the government's main goal is to maintain low and stable inflation, it will take no action, as expansionary fiscal policy could lead to higher inflation in the long run.

Country Z Is Suffering from the Effects of a Negative