Answer to Question #111114 in Macroeconomics for zukile

Question

Suppose the government decides to pursue an expansion army fiscal policy. Within the AD-AS framework, what will be the impact on the economy?
1.Aggregate supply in the economy will decrease at various price levels.
2.Aggregate demand in the economy will decrease at various price levels.
3.Total production and employment will increase, while inflation decrease.
4.Real GDP, the general level of prices and employment will increase

Answer 1

The correct answer is: 4) Real GDP, the general level of prices and employment will increase.

Fiscal policy is the use of government spending and taxation to influence the aggregate demand in the economy.

Expansionary fiscal policy aims at increasing the aggregate demand by reducing taxes and increasing the government spending.