Expansionary demand-side fiscal policies set up a tradeoff between increasing output at the expense of raising prices.

Question

Quizplus · Accepted Answer

Expansionary demand-side fiscal policies, such as increasing government spending or cutting taxes, stimulate aggregate demand, which can lead to higher output and employment levels in the short run. However, if the economy reaches full capacity, additional demand can lead to higher prices instead of higher output, creating inflation. Therefore, there is a tradeoff between increasing output and raising prices when implementing expansionary demand-side fiscal policies.

Expansionary Demand-Side Fiscal Policies Set Up a Tradeoff Between Increasing