Figure: Aggregate Demand and Fiscal Policy (Figure: Aggregate Demand and Fiscal Policy) In the best case scenario, effective short-run fiscal policy would take which action to correct an economy in recession at Point Z?

Question

Figure: Aggregate Demand and Fiscal Policy  (Figure: Aggregate Demand and Fiscal Policy) In the best case scenario, effective short-run fiscal policy would take which action to correct an economy in recession at Point Z?

Quizplus · Accepted Answer

Effective short-run fiscal policy would increase government spending or decrease taxes, which would shift the aggregate demand curve to the right, increasing output and returning the economy to Point X.