Economics (AS & A Level) · May / June 2021 · Paper 12 · Question 28
9708Fiscal policy
Why are higher interest rates together with increased taxation on expenditure likely to cause domestic deflation?
- Abecause the contractionary monetary policy will over-ride the expansionary fiscal policy
- Bbecause the monetary and fiscal policies involved will reinforce each other
- Cbecause the expansionary monetary policy will over-ride the contractionary fiscal policy
- Dbecause the monetary and fiscal policies involved will cancel each other out
As printed in the paper
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Correct answer: B. because the monetary and fiscal policies involved will reinforce each other
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