If fiscal policy is used to close an expansionary gap,the _____.
A)short-run aggregate supply curve shifts leftward and the price level falls
B)short-run aggregate supply curve shifts rightward and the price level increases
C)short-run aggregate supply curve shifts rightward and the price level falls
D)aggregate demand curve shifts leftward and the price level falls
E)aggregate demand curve shifts rightward and the price level falls

Question

Quizplus · Accepted Answer

To close an expansionary gap, fiscal policy needs to decrease aggregate demand, which can be done by reducing government spending or increasing taxes. This will shift the aggregate demand curve leftward, leading to a decrease in the price level.

If Fiscal Policy Is Used to Close an Expansionary Gap,the