Fiscal policy is government action to influence aggregate demand and in turn to influence the level of real GDP and the price level, through:
A) expanding and contracting the money supply.
B) regulation of net exports.
C) changes in government spending and/or tax revenues.
D) encouraging businesses to invest.

Question

Quizplus · Accepted Answer

Fiscal policy involves changes in government spending and/or tax revenues in order to influence aggregate demand. This can be seen in the form of increased government spending on infrastructure projects or tax cuts to stimulate consumer spending. By increasing aggregate demand, fiscal policy can positively impact real GDP and the price level. The other options listed (expanding and contracting the money supply, regulation of net exports, and encouraging businesses to invest) are related to other economic policies such as monetary policy and trade policy.

Fiscal Policy Is Government Action to Influence Aggregate Demand and in Turn