If a government’s budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, causing a threat of an inflationary increase in price levels, then the central bank may react with:
A. a contractionary monetary policy.
B. an expansionary monetary policy.
C. a discretionary monetary policy.
D. a loose monetary policy.
Answer:A
If a government’s budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, causing a threat of an inflationary increase in price levels, then the central bank may react with:
A. a contractionary monetary policy. B. an expansionary monetary policy. C. a discretionary monetary policy. D. a loose monetary policy.
Explanation: Type: Multiple Choice