If expansionary fiscal policy continues in an economy with an increasing budget deficit and a growing national debt, such an economy will experience high inflation.
Expansionary fiscal policy means an increase in government spending. In other words, fiscal policy is when the government commits or spends more money on infrastructure or other budget items or lower taxes that lead to an increase in government spending.
Further Explanation
When a government spends more money on budget items, it will result in a higher budget deficit and also increases the country’s national debt leading to high inflation.
However, high inflation can affect the economy of a country in many negative ways.
- It results in market uncertainties
- It leads to unemployment
- It prevents investors from making informed decisions about their investment
- It may also lead to an unbalanced in international trade
- It also affects foreign exchange rates.
Fiscal Policy is when the government uses the budget to improve the economy such as imposed taxes and government spending. However, the policy is considered expansionary if the government increases its spending or lowers the taxes and it is contractionary if the government reduces its spending or increases the taxes.
Most countries usually introduce contractionary policies to tackle rising inflation.
LEARN MORE:
- What should be a future effect upon the economy if a expansionary fiscal policy continues in an economy with an increasing budget deficit and growing national debt? https://brainly.com/question/12307763
- How does expansionary monetary policy increase spending in the economy compared to how expansionary fiscal policy increases spending in the economy? https://brainly.com/question/7409925
KEYWORDS:
- expansionary fiscal policy
- budget deficit
- growing national debt
- contractionary fiscal policy
- high inflation
