ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It is spent on education
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The economy is near full capacity
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There is a large amount of spare capacity
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It is spent on imported capital goods
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Detailed explanation-1: -An increase in government spending is one of the factors that economists say can drive inflation. Other factors include interest rates, monetary policy, supply chain disruptions and fluctuations in demand for goods and services. Inflation can be an important consideration for investing, saving and borrowing.
Detailed explanation-2: -Fiscal Multiplier is often seen as a way that spending can boost growth in the economy. This multiplier state that an increase in the government spending leads to an increase in some measures of economic wide output such as GDP.
Detailed explanation-3: -Option C) is correct: Demand pull-inflation. If prices rise due to a rise in aggregate spending or aggregate demand, this depicts demand-pull inflation. The government rectifies it using its contractionary fiscal policy tool.
Detailed explanation-4: -Long-lasting episodes of high inflation are often the result of lax monetary policy. If the money supply grows too big relative to the size of an economy, the unit value of the currency diminishes; in other words, its purchasing power falls and prices rise.