Asked by j
Why did Friedrich Hayek call expansionary spending dangerous?
He felt it could lower the money supply and cause deflation.
He felt it could lead to inflation and poor decisions by consumers.
He felt it could lead to deflation and poor decisions by consumers.
He felt it could lower available credit and cause a drop in prices.
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Answered by
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The best answer is: "He felt it could lead to inflation and poor decisions by consumers."
More precisely, Hayek argued that expansionary (credit/money) policy causes inflation and distorts interest rates and price signals, leading to malinvestment and poor economic decisions (especially by investors/entrepreneurs), which create unsustainable booms followed by painful corrections.
More precisely, Hayek argued that expansionary (credit/money) policy causes inflation and distorts interest rates and price signals, leading to malinvestment and poor economic decisions (especially by investors/entrepreneurs), which create unsustainable booms followed by painful corrections.
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