Fiscal policy affects the economy
A)only in the short run.
B)only in the long run.
C)in both the short and long run.
D)in neither the short nor long run.

Question

Quizplus · Accepted Answer

Fiscal policy, which includes government spending and taxation, can have both short-term and long-term effects on the economy. In the short run, changes in fiscal policy can influence aggregate demand, leading to changes in output, employment, and prices. In the long run, fiscal policy can affect the supply side of the economy, influencing factors such as investment, productivity, and potential output. Therefore, fiscal policy has the potential to impact the economy in both the short and long run.

Fiscal Policy Affects the Economy