Th2.6: Expansionary and Deflationary Fiscal and Monetary Policies

Question 1

What will expansionary policies lead to?

Answer 1

increase AD to increase output, employment and economic growth but will lead to increased inflation and may worsen the balance of payments as some of the increased demand for goods and services will be met by imports

Question 2

What will deflationary policies lead to?

Answer 2

decrease AD to improve inflation but will decrease employment and economic growth