**Title: Understanding Fiscal Policy to Boost Economic Output****Content:**In order to boost output, the federal government engages in _____ fiscal policy, which _____ government spending and _____ taxes. **Options:**1. ○ expansionary; lowers; raises2. ○ contractionary; lowers; raises3. ○ expansionary; raises; lowers4. ○ contractionary; raises; lowers ### Understanding the Impact of the GDP DeflatorThe GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. It is a crucial indicator to help us understand inflation and the economic health of a country. #### Effects of an Increased GDP DeflatorWhen the GDP deflator in an economy increases, it can have several impacts:1. **Higher Purchasing Power of the Currency:** - Generally, a higher GDP deflator indicates an increase in the overall price level, suggesting inflation. This typically results in a **lower** purchasing power of the currency, contrary to the statement in option (i).2. **Lower Real Wealth in the Economy:** - Inflation erodes the real value of money. An increase in the GDP deflator means that higher prices for goods and services reduce the real wealth in the economy. This is accurately reflected in option (ii).3. **Higher Real Wealth in an Economy:** - This is usually an incorrect assertion during inflation. Real wealth generally decreases as prices increase, making option (iii) incorrect.4. **More Expensive Exports:** - When the domestic price level rises, it often makes a country's exports more expensive for foreign buyers, thereby reducing their competitiveness. This is correctly stated in option (iv).#### Question AnalysisGiven the points discussed above, the options are as follows:a) **(i), (iii), and (iv)**b) **(ii) and (iv)**c) **(i), (ii), (iii), and (iv)**d) **(i) only**The accurate assessment based on economic principles would be:**b) (ii) and (iv)**This choice correctly identifies that an increase in the GDP deflator leads to lower real wealth in the economy and makes the country's exports more expensive. Understanding these impacts can help policymakers and economists devise strategies to manage inflation and its consequences effectively.

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In order to boost output, the federal government engages in fiscal policy, which government spending and taxes.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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Concept explainers

Unemployment and Cost of Unemployment

Unemployment is the state of being unemployed, even when an individual is actively seeking work opportunities. The unemployment rate refers to the percentage of the workforce that is currently unemployed.

Question

**Title: Understanding Fiscal Policy to Boost Economic Output**

**Content:**

In order to boost output, the federal government engages in _____ fiscal policy, which _____ government spending and _____ taxes.

**Options:**
1. ○ expansionary; lowers; raises
2. ○ contractionary; lowers; raises
3. ○ expansionary; raises; lowers
4. ○ contractionary; raises; lowers

### Understanding the Impact of the GDP Deflator

The GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. It is a crucial indicator to help us understand inflation and the economic health of a country.

#### Effects of an Increased GDP Deflator
When the GDP deflator in an economy increases, it can have several impacts:

1. **Higher Purchasing Power of the Currency:**
- Generally, a higher GDP deflator indicates an increase in the overall price level, suggesting inflation. This typically results in a **lower** purchasing power of the currency, contrary to the statement in option (i).

2. **Lower Real Wealth in the Economy:**
- Inflation erodes the real value of money. An increase in the GDP deflator means that higher prices for goods and services reduce the real wealth in the economy. This is accurately reflected in option (ii).

3. **Higher Real Wealth in an Economy:**
- This is usually an incorrect assertion during inflation. Real wealth generally decreases as prices increase, making option (iii) incorrect.

4. **More Expensive Exports:**
- When the domestic price level rises, it often makes a country's exports more expensive for foreign buyers, thereby reducing their competitiveness. This is correctly stated in option (iv).

#### Question Analysis
Given the points discussed above, the options are as follows:

a) **(i), (iii), and (iv)**
b) **(ii) and (iv)**
c) **(i), (ii), (iii), and (iv)**
d) **(i) only**

The accurate assessment based on economic principles would be:

**b) (ii) and (iv)**

This choice correctly identifies that an increase in the GDP deflator leads to lower real wealth in the economy and makes the country's exports more expensive.

Understanding these impacts can help policymakers and economists devise strategies to manage inflation and its consequences effectively.

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