Question

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Answer 1

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be _higher_and real GDP to be higher.

What is Expansionary fiscal policy ?

Expansionary fiscal policy can be defined as the type of fiscal policy in which government intend to increase the aggregate money supply while on the other hand cut or reduce the tax rate for the purpose of economy growth.

In a situation were real GDP fall below potential real GDP this tend to lead to increase in both inflation rate and real GDP.

Inconclusion the inflation rate will be _higher_and real GDP will be higher.

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