The fiscal policy is related to which of the following?
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Which of the following explains the crowding-out effect?
A. Borrowing and spending related to expansionary fiscal policy will tend to push interest rates upward.
B. Borrowing and spending related to expansionary fiscal policy will tend to crowd foreign investors out of local markets.
C. Borrowing and spending related to expansionary fiscal policy will leave little government resources for essential activities such as national defence.
D. None of the above.
Hyperinflation: Although inflation is always and everywhere a monetary phenomenon, explain why the initial source of hyperinflation is typically related to the fiscal policy.
Assume that the economy is at full employment and is experiencing rapid inflation. Which of the following combinations of monetary and fiscal policies would reduce inflation most, assuming the dollar values for both policy changes are the same amount?
A. Monetary Policy - Buy government securities; Fiscal Policy - Increase the federal budget deficit
B. Monetary Policy - Buy government securities; Fiscal Policy - Decrease the federal budget deficit
C. Monetary Policy - Sell government securities; Fiscal Policy - Increase the federal budget deficit
D. Monetary Policy - Sell government securities; Fiscal Policy - Decrease the federal budget deficit