If the economy is below full employment and the government uses expansionary fiscal policy in an attempt to reduce unemployment

Question

Quizplus · Accepted Answer

Expansionary fiscal policy, such as increasing government spending or cutting taxes, is used to stimulate aggregate demand and increase economic output. When the economy is below full employment, there are idle resources, including labor, which can be utilized to increase output without causing inflation. By increasing aggregate demand through fiscal policy, businesses will respond by producing more output, which will eventually lead to an increase in employment and a reduction in unemployment. As output and employment increase, the price level may also rise due to higher demand for goods and services. Therefore, choice A - output and the price level will rise - is the correct answer.

If the Economy Is Below Full Employment and the Government