Question

What should be a future effect upon the economy if a expansionary fiscal policy continues in an economy with an increasing budget deficit and growing national debt?
A) deflation
B) low inflation
C) high inflation
D) not enough information given

Answer 1

Answer:

C) high inflation

Explanation:

Inflation is a monetary phenomenon, caused by the excess of modeda in circulation. An economy whose fiscal deficit is large and whose national debt is large already tends to have an inflationary bias, as the deficit is caused by the difference between revenue and spending. The more government spending, the more inflationary an economy tends to be. Therefore, if the government uses an expansionary fiscal policy, increasing expenses even further, the tendency is for this economy to experience rising inflation.

Answer 2

the answer is C) high inflation