In an aggregate demand and aggregate supply graph, an expansionary fiscal policy can be illustrated by a:
A)leftward shift in the aggregate demand curve.
B)rightward shift in the aggregate demand curve.
C)leftward shift in the aggregate supply curve.
D)change in the price level.

Question

Quizplus · Accepted Answer

An expansionary fiscal policy involves increasing government spending and/or decreasing taxes, which stimulates consumer spending and investment. This leads to an increase in aggregate demand, which can be illustrated by a rightward shift in the AD curve. A leftward shift in the AD curve would indicate a decrease in aggregate demand, which is the opposite of an expansionary fiscal policy. A leftward shift in the AS curve would indicate a decrease in productivity or increase in costs, which is not directly related to fiscal policy. A change in the price level could result from various factors and does not necessarily indicate a fiscal policy action.

In an Aggregate Demand and Aggregate Supply Graph, an Expansionary