Multiple Choice
Which of the following pairs of operations best fit with fiscal policy?
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19. Fiscal Policy
Introduction to Fiscal Policy
Multiple Choice
With expansionary fiscal policy, what is the primary goal for aggregate demand?
A
To keep aggregate demand unchanged
B
To eliminate aggregate demand entirely
C
To increase aggregate demand
D
To decrease aggregate demand
Verified step by step guidance1
Step 1: Understand the concept of expansionary fiscal policy. This policy involves increasing government spending, decreasing taxes, or both, with the aim of stimulating economic activity.
Step 2: Recall that aggregate demand (AD) represents the total demand for goods and services in an economy at a given overall price level and in a given period.
Step 3: Recognize that the primary goal of expansionary fiscal policy is to shift the aggregate demand curve to the right, which means increasing aggregate demand.
Step 4: Analyze the options given: keeping AD unchanged or eliminating it would not stimulate the economy, and decreasing AD would contract economic activity, which is contrary to expansionary policy goals.
Step 5: Conclude that the correct goal of expansionary fiscal policy is to increase aggregate demand, thereby encouraging higher output and employment.
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