Which of the following event(s) most likely will leave prices relatively unchanged while increasing output?
A)an increase in money supply combined with an income tax increase
B)expansionary monetary policy in response to an adverse supply shock
C)expansionary fiscal policy employed after a favorable supply shock
D)restrictive monetary policy in response to an oil price decrease
E)none of these

Question

Quizplus · Accepted Answer

Expansionary fiscal policy employed after a favorable supply shock will increase output without causing a significant increase in prices. This is because the favorable supply shock has increased the availability of goods and services, and the expansionary fiscal policy will stimulate demand for those goods and services without causing a significant increase in their prices. Option A is incorrect because an income tax increase will decrease disposable income, leading to a decrease in demand, and the increase in money supply will cause inflation. Option B is incorrect because expansionary monetary policy will spur demand and increase prices. Option D is incorrect because restrictive monetary policy will decrease demand, causing a decrease in output and decreasing prices.

Which of the Following Event(s) Most Likely Will Leave Prices