39
QuizMultiple Choice

Fiscal Policy: Spending — Quiz

Question 39 • Economics

Which of these accurately explains the impact of an expansionary policy on interest rates, inflation, and unemployment?

Answer
A
Government spending with an expansionary policy can reduce inflation and interest rates but can increase unemployment.
B
Government spending with an expansionary policy can reduce interest rates and unemployment but can increase inflation.
C
Government spending with an expansionary policy can increase interest rates and inflation but can reduce unemployment.
D
Government spending with an expansionary policy can increase unemployment and interest rates but can reduce inflation.

Explanation

Expansionary government spending increases aggregate demand, encouraging businesses to produce more and hire more workers, so unemployment can fall. Stronger demand can also push prices upward, increasing inflation, while government borrowing to fund spending can put upward pressure on interest rates. Therefore, the choice describing higher interest rates and inflation but lower unemployment is correct.

AI-written and checked against the verified answer.

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