Which of the following is true concerning expansionary fiscal policy?

Question

Quizplus · Accepted Answer

Expansionary fiscal policy is designed to increase government spending and decrease taxes in order to stimulate demand in the economy and increase output. This leads to an outward shift of the aggregate demand curve, resulting in an increase in output. Option A is incorrect because expansionary fiscal policy is not designed to control aggregate demand using increases of taxes and cuts in government spending. Option C is incorrect because expansionary fiscal policy may lead to inflation, but this typically occurs when the economy is already operating close to full capacity, therefore the statement "employed at relatively low levels of GDP" is incorrect. Option D is incorrect because expansionary fiscal policy is a policy used by the legislative branch of government, not the Federal Reserve System.

Which of the Following Is True Concerning Expansionary Fiscal Policy