Suppose that the government uses an expansionary fiscal policy.Then:

Question

Quizplus · Accepted Answer

An expansionary fiscal policy involves increasing government spending, decreasing taxes, or a combination of both. This leads to an increase in aggregate demand (AD) as both consumers and firms have more money to spend, which results in an increase in output and a higher equilibrium level of income (Y). This shift in AD is represented by a rightward shift in the IS curve.

Suppose That the Government Uses an Expansionary Fiscal Policy