If aggregate supply is upward sloping,fiscal stimulus causes _______ in aggregate demand and _______ in prices.
A) A decrease;a decrease
B) A decrease;an increase
C) An increase;a decrease
D) An increase;an increase

Question

Quizplus · Accepted Answer

If aggregate supply is upward sloping, fiscal stimulus causes an increase in aggregate demand, as government spending stimulates economic activity. This leads to an increase in prices, as demand for goods and services outstrips the available supply, leading to inflationary pressures. Therefore, the correct answer is D, an increase in aggregate demand and an increase in prices.

If Aggregate Supply Is Upward Sloping,fiscal Stimulus Causes _______ in Aggregate