Solved by Expert Tutors
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Question

(a) Use the simple macroeconomic model to explain how government expenditure

can result in inflation. In your answer, explain why the price level is increasing. [3 marks]



(b) Suppose the government finances its expenditures by issuing bonds to the public. Do you think such government spending can lead to sustained inflation and higher aggregate output? Explain. [4 marks]



(c) Explain why cost-push inflation and its likely impact on the price level creates a dilemma for a policymaker who wants to maintain real GDP growth and a low inflation rate. [3 marks]

Step-by-step answer

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Subject: Business, Economics

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