Fiscal stimulus packages shifts the aggregate demand curve to the _____, which is designed to _____ output at the expense of a higher inflation rate.

Question

Quizplus · Accepted Answer

Fiscal stimulus packages aim to increase aggregate demand, which can be achieved by increasing government spending, cutting taxes or both. This shift in the aggregate demand curve to the right is designed to raise output, as firms will increase production to meet the higher demand. However, this increase in demand may lead to higher prices, thus resulting in a higher inflation rate. Therefore, Option A is correct as it reflects this relationship.

Fiscal Stimulus Packages Shifts the Aggregate Demand Curve to the _____