Which of the following is a problem associated with an active policy such as a stimulus package?
A)Increase in the unemployment rate
B)Increase in inflationary pressure
C)Increase in the market interest rate
D)Decrease in the market interest rate
E)Decrease in money demand

Question

Quizplus · Accepted Answer

An active policy such as a stimulus package can lead to an increase in inflationary pressure because the increase in government spending can lead to an increase in demand for goods and services without a corresponding increase in supply, leading to higher prices. This is known as demand-pull inflation. Increases in the unemployment rate, market interest rate, and money demand are not necessarily problems associated with a stimulus package. A decrease in the market interest rate could actually be an intended effect of the stimulus package to encourage borrowing and investment.

Which of the Following Is a Problem Associated with an Active