Once monetary policy is dedicated to controlling the level of nominal GDP,then fiscal policy can be used to

Question

Quizplus · Accepted Answer

When monetary policy is dedicated to controlling the level of nominal GDP, fiscal policy can be used to choose the overall level of interest rates. A high budget deficit implies a high level of interest rates, as it increases aggregate demand, leading to upward pressure on interest rates. Therefore, option B is the best choice. Option A is incorrect because a high budget surplus implies a low level of interest rates. Option C and D are also incorrect because a high budget surplus or deficit does not necessarily imply a faster rate of inflation.

Once Monetary Policy Is Dedicated to Controlling the Level of Nominal