Question

Contractionary fiscal policy to prevent real gdp from rising above potential real gdp would cause the inflation rate to be ________ and real gdp to be ________.

Answer 1

Answer:

Contractionary fiscal policy to prevent real gdp from rising above potential real gdp would cause the inflation rate to be LOWER and real gdp to be LOWER.

Explanation:

A government engages in contractionary fiscal policy when it decreases spending or increases taxes. This is done to lower the economy's inflation rate, but it also decreases aggregate income which will decrease aggregate supply, resulting in a lower real gross domestic product.