Question #34
Reading: Reading 6 Economic Growth
PDF File: Reading 6 Economic Growth.pdf
Page: 15
Status: Unattempted
Correct Answer: A
Question
Which of the following would least likely occur due to an increase in growth rate of potential GDP?
Answer Choices:
A. Monetary policy would be expansionary
B. Fiscal policy would be expansionary
Explanation
An increase in growth rate of potential GDP (keeping actual growth rate unchanged) would
most likely allow the government to pursue expansionary monetary/fiscal policies. An
increase in growth rate of potential GDP reduces expected credit risk for all fixed income
securities and hence narrows the credit spreads.
Note: The question does not provide any information about actual growth rate, hence we
have to assume it to be constant for a least likely type question.