Discretionary fiscal policies that increase aggregate demand tend to result in

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Discretionary fiscal policies aimed at increasing aggregate demand, such as government spending increases or tax cuts, lead to an increase in both Real GDP and the price level. An increase in government spending or tax cuts increases the disposable income of consumers, leading to an increase in consumption expenditure, which in turn increases aggregate demand in the economy. As aggregate demand rises, firms increase production, leading to an increase in Real GDP. However, as the economy approaches full employment, the rise in aggregate demand can put pressure on the scarce resources, leading to a rise in the price level. Therefore, discretionary fiscal policies aimed at increasing aggregate demand tend to result in an increase in both Real GDP and the price level.

Discretionary Fiscal Policies That Increase Aggregate Demand Tend to Result