12
QuizMultiple Choice

Economic Policy: Influential Theories — Quiz

Question 12 • Economics

Why did Friedrich Hayek call expansionary spending dangerous?

Answer
A
He felt it could lower the money supply and cause deflation.
B
He felt it could lead to deflation and poor decisions by consumers.
C
He felt it could lead to inflation and poor decisions by consumers.
D
He felt it could lower available credit and cause a drop in prices.

Explanation

Hayek argued that expansionary spending can increase the money supply and push prices upward, creating inflation. Inflation can distort price signals and encourage consumers and businesses to make poor decisions about spending and investment. So the choice linking inflation with poor consumer decisions is correct.

AI-written and checked against the verified answer.

Previous
Next