Conflicting Fiscal and Monetary Policies
Assume an economy is in a recessionary gap. If expansionary fiscal policy is enacted while the central bank simultaneously implements contractionary monetary policy, what is the primary risk?
A
A rapid decline in the money supply causing immediate deflation.
B
Rising interest rates that could dampen overall private investment.
C
An abrupt jump to full-employment levels that overheats the economy.
D
A surge in consumer spending leading to unsustainable growth.
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