Fiscal policy works primarily through

Question

Quizplus · Accepted Answer

Fiscal policy primarily works through shifts of the AD curve. This is achieved through changes in government spending and taxation, which directly affect consumption and investment decisions of households and firms. These changes in turn affect the overall level of demand in the economy, leading to shifts in the aggregate demand curve. Fiscal policy can also indirectly affect the supply side of the economy through measures such as infrastructure spending, which can lead to increases in productivity and potential output in the long run. However, the primary focus of fiscal policy is on managing aggregate demand in the short run.

Fiscal Policy Works Primarily Through