Discretionary fiscal policy works by shifting the aggregate demand curve.

Question

Quizplus · Accepted Answer

Discretionary fiscal policy involves changing government spending and/or taxes in order to influence aggregate demand. By increasing government spending or decreasing taxes, aggregate demand is shifted to the right, resulting in higher output and prices. On the other hand, decreasing government spending or increasing taxes shifts aggregate demand to the left, resulting in lower output and prices.

Discretionary Fiscal Policy Works by Shifting the Aggregate Demand Curve