Fiscal policy works primarily through

Question

Quizplus · Accepted Answer

Fiscal policy primarily involves government spending and taxation decisions. These decisions can affect consumer and business behavior, which ultimately impacts aggregate demand (AD). Therefore, fiscal policy mainly works through shifts in the AD curve, leading to changes in output and prices. Shifting the AS curve can also play a role in the short run, but the effects of fiscal policy on the long-term supply-side of the economy have limitations. The other options (C and D) do not accurately describe the primary mechanism for fiscal policy.

Fiscal Policy Works Primarily Through