Answer: Tight fiscal and easy monetary policy

## Explanation When wages and prices are stable, we need to analyze how different policy combinations affect the private sector's share of GDP. **Policy Analysis:** 1. **Easy fiscal policy** (expansionary fiscal policy): Increases government spending and/or reduces taxes, which expands the government's share of GDP. 2. **Tight fiscal policy** (contractionary fiscal policy): Decreases government spending and/or increases taxes, which reduces the government's share of GDP. 3. **Easy monetary policy** (expansionary monetary policy): Lowers interest rates, increases money supply, and stimulates private investment and consumption. 4. **Tight monetary policy** (contractionary monetary policy): Raises interest rates, reduces money supply, and dampens private investment and consumption. **Combination Analysis:** - **Option A: Easy fiscal and easy monetary policy** - Both policies are expansionary, but easy fiscal policy increases government's share of GDP, so the private sector's share may not increase relative to the government. - **Option B: Tight fiscal and easy monetary policy** - Tight fiscal policy reduces government spending/taxes, shrinking the government's share of GDP. Easy monetary policy stimulates private investment and consumption. This combination most likely increases the private sector's share of GDP as government shrinks and private sector expands. - **Option C: Easy fiscal and tight monetary policy** - Easy fiscal expands government share, while tight monetary policy constrains private investment. This would likely decrease the private sector's share of GDP. **Conclusion:** Tight fiscal policy reduces the government's role in the economy, while easy monetary policy stimulates private sector activity. This combination is most conducive to increasing the private sector's share of GDP when wages and prices are stable.

Author: LeetQuiz .