Fiscal policy is likely to fail to correct stagflation in an economy because:
A)it affects both aggregate demand and supply,although only aggregate supply needs to be changed.
B)it affects both the aggregate demand and supply,although only aggregate demand needs to be changed.
C)it affects aggregate demand only,although aggregate supply needs to changed.
D)it affects aggregate supply only,although only aggregate demand needs to be changed.
E)it affects either aggregate demand or aggregate supply,although both need to be changed simultaneously.

Question

Quizplus · Accepted Answer

Fiscal policy primarily influences aggregate demand through government spending and taxation. However, stagflation is characterized by high inflation and high unemployment, indicating issues on both the demand and supply sides. To effectively address stagflation, policies that directly influence aggregate supply are also needed, making fiscal policy alone insufficient if it only targets aggregate demand.

Fiscal Policy Is Likely to Fail to Correct Stagflation in an Economy