If the aggregate supply curve is horizontal, an expansionary fiscal policy will result in increased output, along with

Question

Quizplus · Accepted Answer

When the aggregate supply curve is horizontal, it indicates that the economy is not operating at full capacity and there is slack in the economy. In such a scenario, expansionary fiscal policy, which involves increasing government spending or decreasing taxes to stimulate the economy, will lead to higher employment as firms increase production to meet the higher demand. Prices remain stable because the economy has the capacity to meet the increased demand without putting upward pressure on prices.

If the Aggregate Supply Curve Is Horizontal, an Expansionary Fiscal