Question

1. A country’s government should ________ when inflation begins to climb to unacceptable levels in the economy.

A. shift aggregate demand to the right by using contractionary fiscal policy

B. shift aggregate demand to the right by using expansionary fiscal policy

C. shift aggregate demand to the left by using expansionary fiscal policy

D. shift aggregate demand to the left by using contractionary fiscal policy

2. If the economy is producing less than its potential GDP, ________ will show a smaller deficit than the actual deficit.

A. discretionary fiscal policy

B. the automatic stabilizers

C. expansionary fiscal policy

D. the standardized employment deficit

3. A contractionary fiscal policy by a government may result in which of the following?

A. crowding out of private investment

B. a reduced deficit

C. a reduction in government borrowing

D. lower interest rates

Answer 1

1-when inflation is climb to unacceptable level of economy then country government should use contractionary fiscal policy so that consumption decreases and the aggregate demand shift toward left.

So option D is the correct statement.

2-if the economy is producing less than its potential GDP the standardized employment deficit will show a smaller deficit than the actual deficit.

3-contractionary fiscal policy are used to decrease the aggregate demand by decreasing consumption , decreasing investment and decreasing government spending.

So option C is the correct statement