When a recession is caused by a real shock,an expansionary fiscal policy will result in an increase in:
A) the growth rate which is higher than the increase in the inflation rate.
B) productivity.
C) the inflation rate which is higher than the increase in the growth rate.
D) the unemployment rate.

Question

Quizplus · Accepted Answer

An expansionary fiscal policy during a recession caused by a real shock (such as a sudden increase in oil prices) can lead to higher inflation. This is because the policy increases demand without addressing the underlying issue that reduced supply. The result is that prices rise faster than growth, leading to an inflation rate that is higher than the increase in the growth rate.

When a Recession Is Caused by a Real Shock,an Expansionary