Mainstream macroeconomics would suggest that ﬁscal policy
A) affects GDP and the price level through changes in aggregate supply.
B) changes aggregate demand and GDP through the multiplier process.
C) has no effect unless the ﬁscal policy is accompanied by changes in the money supply.
D) is relatively ineffective because the outcomes are anticipated and offset.

Question

Quizplus · Accepted Answer

Mainstream macroeconomics suggests that fiscal policy changes aggregate demand and GDP through the multiplier process. This is based on the idea that changes in government spending, taxation, and transfer payments have a direct impact on the level of aggregate demand in the economy, which in turn affects real GDP and prices. This view assumes that changes in fiscal policy can have a significant impact on the economy, particularly in the short run, without necessarily depending on changes in the money supply. However, it should be noted that there may be some limitations to the effectiveness of fiscal policy, such as the possibility of anticipation and offsetting effects by individuals and firms in the economy.

Mainstream Macroeconomics Would Suggest That ﬁScal Policy