If economists predict that the inflation will increase, the government should:
A)decrease government spending.
B)decrease taxes.
C)lower interest rates.
D)conduct expansionary fiscal policy.

Question

Quizplus · Accepted Answer

If economists predict that inflation will increase, then decreasing government spending can help reduce the demand in the economy and thus, decrease inflationary pressures. This is known as contractionary fiscal policy. Decreasing taxes or lowering interest rates can have the opposite effect by increasing demand in the economy and potentially exacerbating inflationary pressures. Conducting expansionary fiscal policy, as listed in choice D, would also increase demand in the economy and lead to further inflation.

If Economists Predict That the Inflation Will Increase, the Government