Fiscal policy affects the goods market through
A) changes in money supply.
B) changes in taxes and money supply.
C) changes in government spending and money supply.
D) changes in taxes and government spending.

Question

Quizplus · Accepted Answer

Fiscal policy affects the goods market through changes in taxes and government spending. When government spending increases, demand for goods and services in the economy also increases, leading to an increase in output and a rise in the price level. Conversely, when taxes are cut, disposable incomes of individuals increase leading to higher spending, which results in a boost in the overall demand for goods and services. Therefore, changes in taxes and government spending affect the level of aggregate demand, leading to changes in the goods market.

Fiscal Policy Affects the Goods Market Through