Question

TRUE or FALSE? Correct if FALSE

1. There is no way to expand an economy using fiscal policy without incurring (or increasing) a budget deficit.

2. The existence of budget deficits must mean that the government is conducting an expansionary fiscal policy.

3. When a government finances its expenditures by printing money rather than collecting taxes, this can lead to “too much money chasing too few goods” and hyperinflation.

Answer 1

Answer 1) There is no way to expand an economy using fiscal policy without incurring (or increasing) a budget deficit - This statement is False because whenever there is fiscal expansion budget deficit will happen.

2) The existence of budget deficits must mean that the government is conducting an expansionary fiscal policy - This statement is True because whenever the government is conducting expansionary fiscal policy, the government is increasing it's expenditure so the budget deficit happens.

3) When a government finances its expenditures by printing money rather than collecting taxes, this can lead to “too much money chasing too few goods” and hyperinflation - This statement is True because hyperinflation starts when a country's government begins printing money to pay for its spending. As it increases the money supply, prices rise as in regular inflation. Demand-Pull Inflation is commonly described as too much money chasing too few goods. And demand pull inflation and printing more money both are causes of hyperinflation.