Subject - Economics:

Macroeconomics

MCQ - 69-4079

Question:

If the economy is operating at full employment, which of the following policies will create the most inflation in the short run?

An increase in government spending matched by an equal increase in taxes
An increase in government spending with no change in taxes
A decrease in government spending and a matching increase in taxes
An increase in government spending with no change in taxes
A decrease in government spending matched by an equal decrease in taxes

Correct Answer: B

Explanation:

Because the spending multiplier is larger than the tax multiplier, AD shifts farther to the right when spending is increased with no change in taxes. With the economy currently at full employment, this largest of rightward shifts in AD will be the most inflationary policy.

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269 MCQ for effective preparation of the test of Macroeconomics of Economics section.

Read the MCQ statement: If the economy is operating at full employment, which of the following policies will create the most inflation in the short run?, keenly and apply the method you have learn through the video lessons for Macroeconomics to give the answer. Record your answer and check its correct answer and video explanation for MCQ No. 69-4079.

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Solve the question for MCQ No. and decide which option (A through D/E) is the best choice to answer the MCQ, then click/tap the blue button to view the correct answer and it explanation.

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