Graphically,which of the following will be the result of counter-cyclical fiscal policy?
A)Only the AS curve will shift.
B)Both the AS and the potential GDP curves will shift.
C)There will be a movement along the AS curve.
D)There will be a movement along both the AS and potential GDP curves.

Question

Quizplus · Accepted Answer

Counter-cyclical fiscal policy, such as increasing government spending or cutting taxes during a recession, does not shift the aggregate supply (AS) curve or the potential GDP curve. Instead, it affects the aggregate demand (AD), leading to a movement along the AS curve as the economy moves towards equilibrium.

Graphically,which of the Following Will Be the Result of Counter-Cyclical