Suppose policymakers wish to use fiscal policy to fight inflation. Which statement is MOST accurate?

Question

Quizplus · Accepted Answer

Using fiscal policy to fight inflation involves decreasing aggregate demand, which can be done through measures such as reducing government spending, increasing taxes, or selling securities. This decreases the amount of money in circulation and reduces consumer spending, ultimately leading to lower inflation. However, this can also result in a rise in unemployment as businesses reduce production in response to decreased demand. Therefore, B is the most accurate statement as it acknowledges the trade-off that policymakers must consider when using fiscal policy to combat inflation.

Suppose Policymakers Wish to Use Fiscal Policy to Fight Inflation