An economy is operating at long-run equilibrium. What is the MOST likely result of an aggressive expansionary fiscal policy?

Question

Quizplus · Accepted Answer

In the long run, the economy will tend to return to its potential output level regardless of the fiscal policy implemented. This is because the economy is operating at its long-run equilibrium, which means that prices and wages have adjusted to their appropriate levels, and there are no idle resources. Therefore, an aggressive expansionary fiscal policy would not increase long-run GDP or employment, but could lead to inflationary pressures as it increases aggregate demand beyond the economy's potential output level.

An Economy Is Operating at Long-Run Equilibrium