Which of the following statements about fiscal policy and aggregate supply is CORRECT?

Question

Quizplus · Accepted Answer

Fiscal policies that influence aggregate supply, such as investments in infrastructure, education, or research and development, can increase output without necessarily causing inflation. This is because they can lead to productivity gains, lower production costs, and higher potential output in the long run. However, some fiscal policies that affect aggregate supply, such as tax incentives or subsidies for certain industries, may have tradeoffs between price levels and output. For example, if the government subsidizes the production of corn ethanol, this may increase output in the short run, but also raise corn prices, which can affect the prices of other goods that use corn, and potentially increase inflation. Overall, fiscal policy can affect aggregate supply in various ways, but the specific effects depend on the type, timing, and magnitude of the policy measures, as well as on the state of the economy and the behavior of consumers, producers, and investors.

Which of the Following Statements About Fiscal Policy and Aggregate