Fiscal policy can be used to move the economy along the short-run Phillips curve.

Question

Quizplus · Accepted Answer

Fiscal policy, including government spending and taxation, can be used to stimulate or slow down the economy, impacting inflation and unemployment levels. By increasing government spending or decreasing taxes, aggregate demand can increase, leading to lower unemployment and potentially higher inflation, moving the economy along the short-run Phillips curve. Conversely, decreasing government spending or increasing taxes can decrease aggregate demand, leading to higher unemployment and potentially lower inflation, also moving the economy along the short-run Phillips curve.

Fiscal Policy Can Be Used to Move the Economy Along