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Fiscal Policy: Taxes (continued)

Question 2 • Personal Financial and Money Management (21023710) BCPS 2026-27

The potential to cause inflation is accompanied by monetary policy.

Answer
A
expansionary
B
contractionary

Explanation

Expansionary monetary policy increases the money supply and encourages borrowing and spending. If demand grows faster than the economy’s ability to produce goods and services, prices can rise, causing inflation. Contractionary policy instead slows spending to help reduce inflation.

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