Contractionary fiscal policy is designed to combat demand-pull inflation and consists of a decrease in government spending and/or an increase in taxes.
a. True
b. False
Indicate whether the statement is true or false
Question 2
If the government accelerates money supply growth and enlarges the budget deficit to stimulate aggregate demand, the rational expectations hypothesis indicates that decision makers will:
a. ignore the policy until it exerts an observable impact on prices, output, and employment.
b. quickly take steps to adjust their decision making in light of the more expansionary policies.
c. be fooled at the outset but eventually adjust their decision making in accordance with the change in policy.
d. be unaware that this policy change has been implemented until a higher rate of inflation is observed.
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