Why would a government want to use expansionary fiscal policy to help stimulate aggregate demand if,in the long run,we would expect prices to adjust and the economy to return to its long-run equilibrium on its own?
A) Expansionary fiscal policy always works in stimulating aggregate demand.
B) It could take a long time for prices to adjust by market forces alone.
C) Expansionary fiscal policy has no adverse effects on the economy.
D) When prices adjust during a recession,we see increases in inflation.
E) Expansionary fiscal policy is easy to get approved by Congress and the president.

Question

Quizplus · Accepted Answer

It could take a long time for prices to adjust by market forces alone. Even if the economy will eventually return to its long-run equilibrium, the adjustment process may be slow and painful, causing unnecessary hardship and unemployment in the meantime. Expansionary fiscal policy can help speed up the adjustment process by boosting aggregate demand, which can lead to quicker price adjustments and a faster return to long-run equilibrium.

Why Would a Government Want to Use Expansionary Fiscal Policy