What is the result of expansionary fiscal and monetary policies if an economy is suffering stagflation?
A)Unemployment may be cured but at the cost of higher inflation.
B)Inflation may be cured but at the cost of higher unemployment.
C)It will increase the levels of both unemployment and inflation.
D)It will decrease the levels of both unemployment and inflation.

Question

Quizplus · Accepted Answer

Expansionary fiscal and monetary policies are aimed at increasing aggregate demand and stimulating economic growth. However, stagflation refers to a situation where an economy experiences high inflation and stagnant or declining economic activity. In this scenario, expansionary policies may improve unemployment levels, but at the same time, they may fuel inflation. Therefore, the best option is A, which states that unemployment may be cured but at the cost of higher inflation.

What Is the Result of Expansionary Fiscal and Monetary Policies