In the early 2000s, Ecuador suffered high inflation because the central bank was financing a government deficit. In terms of fiscal and monetary policy, what created the problem of inflation was that Ecuador's:
A)fiscal and monetary policy were expansionary.
B)fiscal policy was expansionary, but its monetary policy was contractionary.
C)fiscal policy was contractionary, but its monetary policy was expansionary.
D)fiscal and monetary policy were contractionary.

Question

Quizplus · Accepted Answer

When both fiscal and monetary policies are expansionary, the government increases spending (fiscal policy) and the central bank increases the money supply (monetary policy), which can lead to higher inflation, as was the case in Ecuador.

In the Early 2000s, Ecuador Suffered High Inflation Because the Central