When the Economy Is at Full Employment, Expansionary Fiscal Policy

question 361

Multiple Choice

When the economy is at full employment, expansionary fiscal policy results in a new long-run equilibrium at an output level _____ full employment and a _____ price level.

• A) below; higher
• B) equal to; lower
• C) equal to; higher
• D) above; higher

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Definitions:

Aggregate Demand Curve

A visual diagram that illustrates the connection between the general price level within an economy and the aggregate demand for products and services.

Recessionary Gap

The situation where an economy's actual output is less than its potential output due to economic downturn or recession.

Fiscal Policy

A method used by governments to influence a country's economic activity through taxation and spending decisions aimed at achieving economic goals.

Federal Budget Deficit

The shortfall when a government's expenditures exceed its revenues within a fiscal year.