Question

During a recession, if a government uses an expansionary fiscal policy to increase GDP, the:

A. aggregate supply curve will shift to the right.
B. aggregate supply curve will shift to the left.
C. aggregate demand curve will shift to the left.
D. aggregate demand curve will shift to the right.

Answer 1

The correct answer is option D.

Step-by-step explanation:

Expansionary fiscal policy is used to boost economic activities. It is used in case of a recession in the economy. The main tools of expansionary fiscal policy are an increase in government spending and a decrease in taxes.

Both of these will cause an increase in disposable income. This will further lead to an increase in the aggregate demand, causing a rightward shift in the aggregate demand curve.