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When a stimulative fiscal policy (such as increased government spending or tax cuts to boost economic activity) is combined with a restrictive monetary policy (like higher interest rates to control inflation), the effects can be analyzed as follows:
1. Gross domestic product (GDP) to increase: Typically, a stimulative fiscal policy aims to increase GDP by boosting consumer spending and investment. When combined with a restrictive monetary policy, the overall impact can still lead to GDP growth, albeit potentially at a slower pace due to the conflicting nature of the two policies.
2. Interest rates to rise: A restrictive monetary policy involves increasing interest rates to curb inflation. Even when paired with a stimulative fiscal policy, the overall effect would lean towards higher interest rates as the central bank aims to maintain price stability.
In conclusion, the combination of a stimulative fiscal policy and a restrictive monetary policy would likely lead to GDP growth, although potentially at a slower rate, and higher interest rates due to the conflicting objectives of the policies involved.
