Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.
A)higher; higher
B)higher; lower
C)lower; higher
D)lower; lower

Question

Quizplus · Accepted Answer

Expansionary fiscal policy, such as increased government spending or tax cuts, is designed to stimulate economic activity. This leads to higher demand, which can push real GDP higher than it would be without such policy. However, the increased demand can also lead to higher inflation rates as prices rise in response to the greater demand for goods and services.

Expansionary Fiscal Policy to Prevent Real GDP from Falling Below