The consequence of expansionary fiscal policy is:
A) inflation.
B) deflation.
C) a greater level of potential output.
D) a lower level of potential output.

Question

Quizplus · Accepted Answer

Expansionary fiscal policy involves increasing government spending and/or decreasing taxes, which leads to an increase in aggregate demand. This increase in demand can lead to price inflation as producers may struggle to keep up with the higher demand and raise prices to maintain profitability.

The Consequence of Expansionary Fiscal Policy Is