Related to the Economics in Practice on p. 238: A monsoon destroyed 80% of the Gregorian manufacturing base. The Gregorian government decided to use an expansionary fiscal policy to counter the effects of the monsoon on the economy. The use of the expansionary fiscal policy would have caused
A) the price level to be lower and the output level to be higher than they would have been without the policy action.
B) both the price level and the output level to be higher than they would have been without the policy action.
C) both the price level and output level to be lower than what they would have been without the policy action.
D) the price level to be higher and the output level to be lower than they would have been without the policy action.

Question

Quizplus · Accepted Answer

An expansionary fiscal policy involves an increase in government spending and/or a decrease in taxes. In this case, the Gregorian government is using this policy to counter the effects of the monsoon on the manufacturing base. This will lead to an increase in aggregate demand, which will increase both the price level and the output level. Therefore, both the price level and output level will be higher than they would have been without the policy action.

Related to the Economics in Practice on P