According to Economic Theory, How Does Fiscal Policy Affect the Output

question 39

Multiple Choice

According to economic theory, how does fiscal policy affect the output and price level in an economy?

• A) The policy shifts the aggregate demand curve, which leads to new short-run equilibrium output and price levels.
• B) The policy shifts the long-run aggregate supply curve, which leads to a new long-run equilibrium.
• C) The policy shifts the short-run aggregate supply curve, which leads to new short-run equilibrium output and price levels.
• D) The policy shifts the short-run aggregate supply curve, which leads to a new short-run equilibrium price level with no impact on output.

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