An effective expansionary fiscal policy will:
A)not change the size of full-employment deficit.
B)reduce a full-employment deficit.
C)increase the full-employment deficit.
D)always result in a balanced budget once full-employment is achieve

Question

Quizplus · Accepted Answer

An effective expansionary fiscal policy involves increasing government spending and/or decreasing taxes to stimulate economic growth, which leads to an increase in aggregate demand. This increase in aggregate demand will increase output and employment in the short run, but in the long run, it will likely cause inflationary pressures. As a result, an effective expansionary fiscal policy will actually increase the full-employment deficit.

An Effective Expansionary Fiscal Policy Will