Which of the following statements about fiscal policy is true?
A) Real Gross Domestic Product (GDP) can be increased above its long-run equilibrium only in the short run.
B) Real Gross Domestic Product (GDP) can never be increased above its long-run equilibrium, even for a brief period of time.
C) Government can shift the aggregate demand curve inward by increasing spending.
D) Government can shift the aggregate demand curve outward by reducing spending.

Question

Quizplus · Accepted Answer

Fiscal policy can be used to increase real GDP above its long-run equilibrium in the short run by increasing government spending, cutting taxes, or both. However, in the long run, the economy will return to its natural level of output or potential Output.

Which of the Following Statements About Fiscal Policy Is True