Asked by Nguyên Tr?ng on May 10, 2024
Verified
If fiscal policy is used to close an expansionary gap,the _____.
A) short-run aggregate supply curve shifts leftward and the price level falls
B) short-run aggregate supply curve shifts rightward and the price level increases
C) short-run aggregate supply curve shifts rightward and the price level falls
D) aggregate demand curve shifts leftward and the price level falls
E) aggregate demand curve shifts rightward and the price level falls
Expansionary Gap
A situation in macroeconomics where a country's actual gross domestic product exceeds its potential GDP, leading to inflation.
Fiscal Policy
Refers to the use of government spending and tax policies to influence economic conditions, including demand, employment, and inflation.
Aggregate Demand Curve
A graphical representation showing the relationship between the total quantity of goods and services demanded across all sectors of an economy and the price level, all else being equal.
- Outline the differences between expansionary and contractionary fiscal policies and their effectiveness in mitigating economic discrepancies.
- Analyze the effect of governmental fiscal measures on the stability of production, job quantity, and pricing metrics.
Verified Answer
DP
Divya PatelMay 11, 2024
Final Answer :
D
Explanation :
To close an expansionary gap, fiscal policy needs to decrease aggregate demand, which can be done by reducing government spending or increasing taxes. This will shift the aggregate demand curve leftward, leading to a decrease in the price level.
Learning Objectives
- Outline the differences between expansionary and contractionary fiscal policies and their effectiveness in mitigating economic discrepancies.
- Analyze the effect of governmental fiscal measures on the stability of production, job quantity, and pricing metrics.