Question

Suppose that the government engages in expansionary fiscal policy by increasing government spending. Show the initial impact by properly shifting the aggregate demand curve (AD), the short‑run aggregate supply curve (SRAS), or the long‑run aggregate supply curve on the graph below.

Answer 1

*see image*

Step-by-step explanation:

An increase in government spending causes the aggregate demand curve to shift to the right.

Aggregate demand shows how the overall price level and the amount of goods and services purchased are related. One component of a nation's collective spending on goods and services are government purchases. Ceteris paribus, more government spending implies more total spending and is associated with aggregate demand increasing accordingly.

The aggregate supply curves, whether depicting a short run or a long run relationship, both show how the total amount of goods and services produced in the economy varies as the price level varies. This is not directly impacted by changes in government spending.