The reason that fiscal policy was not helpful in the 1970s was that such policy is aimed at
A)both aggregate demand and aggregate supply,but the problem was only with demand
B)both aggregate demand and aggregate supply,but the problem was only with supply
C)aggregate demand only,but the problem was in aggregate supply
D)aggregate supply only,but the problem was in aggregate demand
E)either aggregate demand or aggregate supply,but the problem was with both of them at once

Question

Quizplus · Accepted Answer

Fiscal policy is aimed at influencing aggregate demand through changes in government spending, taxes, and transfer payments. However, in the 1970s, the problem was not with aggregate demand but with aggregate supply. The economy experienced stagflation - a combination of high inflation and high unemployment due to supply-side shocks such as oil price increases and productivity slowdowns. Therefore, fiscal policy was not effective in addressing the underlying causes of the problem.

The Reason That Fiscal Policy Was Not Helpful in the 1970s