Suppose that the economy is currently at full employment.All other things being equal, if central bank implements contractionary policy, then the appropriate fiscal policy is to
A)increase taxes.
B)reduce government spending.
C)balance the budget.
D)increase a budget deficit.

Question

Quizplus · Accepted Answer

Contractionary monetary policy typically leads to higher interest rates and reduced money supply, which can slow economic growth. To counteract this and avoid a potential recession, an appropriate fiscal policy response would be to increase a budget deficit, either by cutting taxes or increasing government spending, to stimulate the economy.

Suppose That the Economy Is Currently at Full Employment