Which of the following statements about fiscal policy is TRUE?

Question

Quizplus · Accepted Answer

Fiscal policy can be used to increase Real GDP in the short run, but in the long run, the economy will return to its long-run equilibrium level of output determined by factors such as technology, capital stock, and labor force. Therefore, statement A is true. Statement B is incorrect because Real GDP can temporarily exceed its long-run equilibrium level due to fiscal policy, but it cannot be sustained indefinitely. Statements C and D are incorrect because government spending is a component of aggregate demand, so increasing spending shifts the aggregate demand curve outward while reducing spending shifts it inward.

Which of the Following Statements About Fiscal Policy Is TRUE