Fiscal policy is MOST effective in offsetting the effects of:
A) shocks to aggregate demand.
B) real shocks.
C) shocks to the short-run aggregate supply curve.
D) shocks to the LRAS curve.

Question

Quizplus · Accepted Answer

Fiscal policy, such as government spending and taxation, can directly affect aggregate demand. Therefore, it is most effective in offsetting the effects of shocks to aggregate demand. Real shocks and shocks to the aggregate supply curves are more difficult to address with fiscal policy.

Fiscal Policy Is MOST Effective in Offsetting the Effects Of