Fiscal policy works principally through shifts of the aggregate demand curve.

Question

Quizplus · Accepted Answer

Fiscal policy involves changes in government spending and taxes, which directly affect aggregate demand. Increases in government spending or decreases in taxes will shift the aggregate demand curve to the right, while decreases in government spending or increases in taxes will shift the curve to the left. Therefore, fiscal policy works principally through shifts of the aggregate demand curve.

Fiscal Policy Works Principally Through Shifts of the Aggregate Demand