Question

Which fiscal policy strategy do you think policymakers would use in each of these scenarios? (

a. Inflation is rising, and real GDP is up by 4 percent. (
b. GDP is down, and the unemployment rate has increased to 10 percent.

Answer 1

The fiscal policy strategy for policymakers in the first scenario of rising inflation and real GDP up 4% could be to raise interest rates to make money more expensive to get a loan and thus cool inflation and in the second scenario if GDP is downn and unemployment is 10% would be to lower the interest rate to make borrowing easier to make it easier for potential employers to advance theri projects and thus promote employment.