The impact of an expansionary fiscal policy on real output will be greatest when the aggregate supply curve is

Question

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When the aggregate supply curve is horizontal, it indicates that the economy is in a situation where there are idle resources and output can increase without leading to higher prices. In such a scenario, expansionary fiscal policy, which involves increasing government spending or decreasing taxes to stimulate economic activity, can have the greatest impact on increasing real output because the economy can produce more without facing inflationary pressures.

The Impact of an Expansionary Fiscal Policy on Real Output