Question

When the economy is expanding too rapidly and inflation and balance of payments problems are being experienced, the appropriate measure to implement is to apply:


expansionary fiscal and monetary policies


restrictive fiscal and monetary policies


expansionary fiscal and restrictive monetary policies


restrictive fiscal and expansionary monetary policies

Answer 1

When the economy is expanding too rapidly and inflation is a concern, along with balance of payments problems, the appropriate measure to implement is to apply **restrictive fiscal and monetary policies**.

Restrictive policies are aimed at slowing down economic growth to curb inflation and stabilize the economy. This can include reducing government spending and increasing taxes (restrictive fiscal policies), as well as increasing interest rates and reducing the money supply (restrictive monetary policies). These measures help cool down demand in the economy, thus addressing inflation and balance of payments issues.