Author Question: If inflation is a major issue in the economy, what would be the correct fiscal policy response from ... (Read 67 times)

javeds · **on:** Jun 30, 2018

If inflation is a major issue in the economy, what would be the correct fiscal policy response from an economic perspective? Why would members of Congress be unlikely to support such actions?

Question 2

In order to use inflation targeting, a central bank must:
a. be independent of fiscal policy.
b. be dependent on fiscal policy.
c. focus on money supply.
d. focus on unemployment.
e. focus on stable exchange rates.

ebe · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

If inflation is the major issue, the correct fiscal policy response would be to increase taxes, decrease government purchases, and/or decrease transfer payments in order to reduce aggregate demand putting downward pressure on prices. However, these actions would not be popular with voters making elected officials unlikely to support them.

Answer to Question 2

a