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In: Economics

Question1 :Which of the following about inflation is NOT true? a)With an unexpectedly high inflation rate,...

Question1 :Which of the following about inflation is NOT true?

a)With an unexpectedly high inflation rate, retirees get lower pensions.

b)A low inflation rate band helps reduce volatility.

c)Governments gain from higher inflation rate.

d)With an unexpectedly low inflation rate, lenders lose and borrowers win.

Question2:

Which of the disadvantages of fiscal policy is NOT true?

		a)Fiscal policy could take significant processing time to get approved.
		b)Fiscal policy sometimes over-corrects the economy.
		c)Fiscal policy could create a government budget deficit.
		d)Fiscal policy has an economy-wide impact and does not account for the fact that economic situations differ from states.

Question3:

What is the short-run effect of a decrease in exports of Australian iron ore on the Australian economy?

		a)The economy would enter the recessionary part of the business cycle.
		b)The economy would enter the expansionary part of the business cycle.
		c)The economy stays at its potential output level but with higher inflation.
		d)The economy stays at its potential output level but with lower inflation.

Expert Solution

Inflation is as we know is the continues increase in the general price level in the economy. Inflation in simple terminology means too much money chasing too few goods. The purchasing power of money is very low.

Inflation is good for borrowers and bad for lenders because it reduces the value of the money paid back to the lenders.

1). The correct option is (c).

Governments gain from higher inflation rate.

High inflation puts pressure on a government to increase the value of the state pension and unemployment benefits and other welfare payments as the cost of living climbs higher.

2). The correct option is (d).

Fiscal policy has an economy-wide impact and does not account for the fact that economic situations differ from states.

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy.

3). The correct option is (d).

The economy stays at its potential output level but with lower inflation.

The decrease in exports will not effect the potential output of the Australian econnomy, the impact of decrease in exports is that it will reduce inflation in short run.

Hope you got the answer.

Kindly comment for further explanation.

Thanks ?

Rahul Sunny answered 2 years ago

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