Ultimate access to all questions.
Explanation:
When an economy experiences low growth and low inflation with interest rates already near zero, monetary policy becomes largely ineffective—a scenario known as a liquidity trap. In this context, an expansionary fiscal policy is the most complementary strategy to stimulate the economy. Increasing government spending on infrastructure projects (Option C) directly injects money into the economy, boosting aggregate demand. Options A and B represent contractionary fiscal policies, which would further dampen economic activity, and Option D is simply neutral.
No comments yet.
Q.58 A country is experiencing a period of low economic growth and low inflation. The central bank has already lowered interest rates to near zero. Which of the following fiscal policy actions would be most complementary to the central bank's monetary policy stance in this situation?
A
Implementing significant tax increases to reduce the budget deficit.
B
Reducing government transfers to households.
C
Increasing government spending on infrastructure projects.
D
Maintaining the current level of government spending.