The Legal gene Prairie View AN × Assignment × ,, PESTLE Analys × , 39 Interestin

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The Legal gene Prairie View AN × Assignment × ,, PESTLE Analys × , 39 Interesting C × cure https://docs.google.com/document/ Insert Format Tools Table Add-ons Help All changes saved in Drive 1= . M 100%. Normal text. Times New 12 . Blu-G 3. A fake economy has very high inflation and low unemployment. Which of these is an appropriate fiscal policy for the fake economy? a) Cut taxes b) Increase government spending c) Increase taxes 4. A fake economy has low inflation and very high unemployment. Which of these is an appropriate fiscal policy for the fake economy? a) Increase government spending b) Cut government spending c) Increase taxes

Explanation / Answer

3 c) increases taxes

When an economy is growing at a very high rate it means there is a high inflation and low unemployment which create an inflationary gap, in order to wipe out such gap government must follow contractionary Fiscal Policy under which either it can decrease spending or it can increase taxes. increasing taxes helps in reducing income of the consumer and hence they can spend less.

4. a) increase goverment spending.

When an economy faces low growth rate that is a very low inflation and high unemployment then government must follow expansionary fiscal policy under which government can increase government spending or decrease tax rate. increasing government spending helps in stimulating investment which ultimately helps in increasing aggregate demand and hence unemployment decreases and price level increases.

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