📚 Learning Guide
Fiscal Policy and Inflation Control
easy

Decreasing government spending always leads to lower inflation by shifting the short-run Phillips curve to the left, regardless of other economic factors.

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True

B

False

Understanding the Answer

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Answer

Decreasing government spending can help reduce inflation, but it doesn't always lead to lower inflation in every situation. When the government spends less, there is less money circulating in the economy, which can lower demand for goods and services. This decrease in demand may shift the short-run Phillips curve to the left, indicating lower inflation and unemployment. However, other factors, like global economic conditions or supply chain issues, can also affect inflation, so it’s not a guaranteed outcome. For example, if the government cuts spending but there is a sudden increase in oil prices, inflation could still rise despite the reduced spending.

Detailed Explanation

It's not true that cutting government spending always lowers inflation. Other options are incorrect because Some might think that less government spending always means lower prices.

Key Concepts

Fiscal Policy
Inflation Control
Phillips Curve
Topic

Fiscal Policy and Inflation Control

Difficulty

easy level question

Cognitive Level

understand

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