If an inflationary boom exists, the appropriate fiscal policy is to:

Question

increase the budget deficit.


increase government spending and hold taxes constant.


decrease government spending and/or raise taxes.


hold government spending constant and decrease taxes.

Answer 1

In the context of an inflationary boom, the appropriate fiscal policy would be to:

decrease government spending and/or raise taxes.

This approach helps to cool down the economy by reducing aggregate demand, which can help to control inflation. Increasing the budget deficit, increasing government spending, or decreasing taxes would likely exacerbate inflationary pressures.