Contractionary fiscal policy shifts the aggregate demand curve to the _____ and is used to close a(n) _____ gap.
A) right; inflationary
B) right; recessionary
C) left; inflationary
D) left; recessionary

Question

Quizplus · Accepted Answer

Contractionary fiscal policy, which includes measures such as decreasing government spending or increasing taxes, is designed to reduce aggregate demand. This policy shifts the aggregate demand curve to the left and is typically used to close an inflationary gap, where actual output exceeds potential output, leading to upward pressure on prices.

Contractionary Fiscal Policy Shifts the Aggregate Demand Curve to the _____