Answer to Question #60900 in Macroeconomics for Keisha

Question

Assume that a country has a growing budget deficit, carries a very large debt, is in a period of high unemployment with interest rates almost at zero, and annual inflation and GDP growth of about 2%.

Suggest how fiscal and monetary policy can move those numbers to an acceptable level keeping inflation the same.

Answer 1

If a country has a growing budget deficit, carries a very large debt, is in a period of high unemployment with interest rates almost at zero, and annual inflation and GDP growth of about 2%, then the decrease in taxes as the part of fiscal policy can move those numbers to an acceptable level keeping inflation the same.