If the effects of expansionary fiscal policy hit when the economy is already expanding,
A) the effects could lead to even deeper recession.
B) the policy will have no effect.
C) the policy is called an automatic stabilizer.
D) it may lead to excessive aggregate demand and inflation.
E) it will lead to high rates of unemployment along with high rates of inflation,known as stagflation.

Question

Quizplus · Accepted Answer

Expansionary fiscal policy puts more money into the economy, increasing aggregate demand. If this occurs while the economy is already expanding, it may lead to excessive demand, causing prices to rise and potentially leading to inflation. This can be harmful to the economy in the long run.

If the Effects of Expansionary Fiscal Policy Hit When the Economy