A-LevelEconomicsGovernment macroeconomic intervention9708/12 · May/June 2021 · Q281 Mark
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
✓ Correct answer
B: because the monetary and fiscal policies involved will reinforce each other
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