If policy makers wanted to use both monetary and fiscal policy to help reduce a high rate of inflation,which of the following would be most appropriate?
A)a larger budget deficit, the purchase of securities in the open market by the Bank of Canada, and a higher bank rate
B)a government budget surplus, the purchase of securities in the open market by the Bank of Canada, and a lower bank rate
C)a larger government budget deficit, the sale of securities in the open market by the Bank of Canada, and a lower bank rate
D)a government budget surplus, the sale of securities in the open market by the Bank of Canada, and a higher bank rate

Question

Quizplus · Accepted Answer

To reduce high inflation, the appropriate policy mix would be to have contractionary monetary and fiscal policies. A government budget surplus would reduce aggregate demand and decrease inflationary pressures. The sale of securities in the open market by the Bank of Canada would also reduce the money supply, which would lower inflation. Lastly, a higher bank rate would discourage borrowing and limit spending, which would further decrease inflationary pressures. Therefore, a government budget surplus, the sale of securities in the open market by the Bank of Canada, and a higher bank rate would be the most appropriate combination of policies to reduce high inflation.

If Policy Makers Wanted to Use Both Monetary and Fiscal