In the short run, expansionary fiscal policy usually will
A)increase the price level and increase real GDP.
B)increase the price level and decrease real GDP.
C)decrease the price level and increase real GDP.
D)decrease the price level and decrease real GDP.

Question

Quizplus · Accepted Answer

Expansionary fiscal policy involves government increasing its spending or decreasing taxes in order to increase aggregate demand. This will likely lead to an increase in both the price level (inflation) and real GDP in the short run. This is because the increase in aggregate demand will lead to increased production and investment, leading to an increase in real GDP. However, if this expansionary policy is sustained in the long run, it could lead to higher inflation and a decrease in real GDP.

In the Short Run, Expansionary Fiscal Policy Usually Will