With expansionary fiscal policy, what is the primary goal for aggregate demand?

• A. To keep aggregate demand unchanged
• B. To eliminate aggregate demand entirely
• C. To increase aggregate demand
• D. To decrease aggregate demand

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of expansionary fiscal policy. This policy involves increasing government spending, decreasing taxes, or both, with the aim of stimulating economic activity.
2. Step 2: Recall that aggregate demand (AD) represents the total demand for goods and services in an economy at a given overall price level and in a given period.
3. Step 3: Recognize that the primary goal of expansionary fiscal policy is to shift the aggregate demand curve to the right, which means increasing aggregate demand.
4. Step 4: Analyze the options given: keeping AD unchanged or eliminating it would not stimulate the economy, and decreasing AD would contract economic activity, which is contrary to expansionary policy goals.
5. Step 5: Conclude that the correct goal of expansionary fiscal policy is to increase aggregate demand, thereby encouraging higher output and employment.