An expansionary policy:

Question

BlackTom AI · Accepted Answer

Starting with the question: An expansionary policy and the provided options.
Option a: 'Increases aggregate demand' — This is a classic description of expansionary policy. By lowering interest rates, increasing government spending, or cutting taxes, aggregate demand is boosted, stimulating output and employment in the short run.
Option b: 'Increases aggregate supply' — Expansionary policy primarily targets demand-side factors. While supply conditions can respond over time (e.g., through investment improving capital stock), the immediate and textbook effect of expansionary policy is not to shift aggregate supply rightward.
Option c: 'Increases full employment' — Expansionary measures aim to raise aggregate demand and output; they do not guarantee full employment, especially if the economy is near or at potential output. Unemployment may fall, but claiming that full employment is always achieved is overly strong and depends on context such as structural factors and the Phillips curve trade-offs.
Option d: 'Decreases the price level' — Expansive monetary or fiscal actions tend to raise or, at best, stabilize the price level in the short run due to higher demand. A decrease in the price level is not the typical outcome; in many models, inflationary pressure may increase or the price level may rise rather than fall.
Narrative summary: The core mechanism of expansionary policy is to stimulate demand components so that overall spending rises. The other options describe effects that are either secondary, context-dependent, or contrary to the primary aim of expansionary policy.

Dashboard Term 2 Non-assesable Multiple Choice Question Quiz - The Circular Flow Model

An expansionary policy:

View Explanation

Log in for full answers

Similar Questions

Assuming other factors being constant, a fall in imports results in a fall in aggregate demand.

In the long-run persistent increases in aggregate demand will:

The downward slope of the aggregate-demand curve shows that:

Assuming other factors being constant, a rise in exports results in a fall in aggregate demand.

In the short run, a decrease in personal income taxes will result in _________________.

Suppose 𝑎 ¯ 𝑐 = 0.75 , 𝑎 ¯ 𝑖 = 0.18 , 𝑎 ¯ 𝑔 = 0.18 , 𝑎 ¯ 𝑒 𝑥 = 0.13 , and 𝑎 ¯ 𝑖 𝑚 = 0.17 . Aggregate demand is 𝑎 ¯ = ______.

Suppose the economy is initially in long-run equilibrium. A decrease in aggregate demand will

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the consumer confidence index falls as consumers become pessimistic about their economic prospects.

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler