In which of the following cases is expansionary fiscal policy LEAST effective in increasing output?
A)if wages adjust rapidly to maintain equilibrium in the labor market
B)if wages do not change much even when there is high unemployment
C)if it is combined with expansionary monetary policy
D)if we have a Keynesian AS-curve
E)if the Fed is trying hard to keep interest rates from rising

Question

Quizplus · Accepted Answer

If wages adjust rapidly to maintain equilibrium in the labor market, firms will not be willing to hire additional workers at higher wages caused by expansionary fiscal policy, which will make it less effective in increasing output.

In Which of the Following Cases Is Expansionary Fiscal Policy