Suppose fiscal policy is used to close an expansionary gap.Which of the SRAS or AD curves are changed, and what happens to the price level?

Question

Quizplus · Accepted Answer

When fiscal policy is used to close an expansionary gap, the AD curve shifts leftward. This is because the government reduces its spending or increases taxes, which reduces aggregate demand. As a result, there is less pressure on resources in the economy, which reduces the price level. Therefore, the correct answer is C, which states that the AD curve shifts leftward, and the price level decreases.

Suppose Fiscal Policy Is Used to Close an Expansionary Gap