Under what circumstances is it most clear that the government should pursue neither fiscal nor monetary policy?

A. There is no inflation and the unemployment rate equal the target rate of unemployment.

B. Unemployment rate exceeds the target rate of unemployment.

C. The economy is experiencing deflation.

D. The economy is below potential output.

A. There is no inflation and the unemployment rate equal the target rate of unemployment.

Explanation:

The governments, through its agencies, pursue monetary and physical polices to achieve its economic objectives. The government's economic goals are include maintaining stable prices and achieving steady and sustainable economic growth.

During periods of high economic growth, industries create job opportunities resulting in low rates of unemployment. Should the growth decline leading to an increase in unemployment, the government employs expansionary monetary and fiscal policies to stimulate growth. Inflation leads to high prices and reduced purchasing power. Fiscal and monetary tools are used should reports indicate that inflation is below or above its target level.

When growth is steady, and inflation is at the desired level, the government does not need to pursue either the monetary or fiscal policies.