Question

In: Economics

1. True/ False: A rise in oil prices is an example of when a Contractionary policy...

1. True/ False: A rise in oil prices is an example of when a Contractionary policy would be best?

2. True/ False: Rising inflation is an example of when an Expansionary policy would be best?

3. True/ False: A stock market collapse that hurts consumers and business confidence is an example of when an expansionary policy would be best.

4.True/ False: Extreme rapid growth of exports is an example of when a Contractionary policy would be best.  

Solutions

Expert Solution

1. True

Because Contractionary policy is concerned with reducing inflation, so rise in oil prices will also decrease purchasing power of consumer and would reduce inflation.

2. False.

Because Rising inflation is an example of when an Contractionary policy would be best. Expansionary policy is concerned about deflation.

3. True

Expansionary policy would be best in case of when stock market collapse that hurts consumers and business confidence because it generates economic growth and economic activity, which would receive stock market and would increase stock price.

4. False.

Contractionary policy restrict growth in consideration with inflation. Expansionary monetary policy is the which reduces interest rate, reduce reserve requirements and expand open market operation and that would leads to extreme rapid growth of exports.


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