An economy's aggregate demand (AD) curve is initially at position AD1. A government implements one of two potential policies to stimulate the economy. Policy X results in a parallel upward shift of the AD curve to AD2. Policy Y results in the AD curve rotating upwards and becoming steeper, also moving to a new position. Which of the following correctly identifies the most likely fiscal policies?

Fiscal Policy Instrument Evaluation

Contrasting Fiscal Policy Impacts on Aggregate Demand

A decrease in the income tax rate and an increase in government purchases of goods and services both cause the aggregate demand curve to shift upwards in a parallel fashion.

Match each fiscal policy action to its specific effect on the aggregate demand (AD) curve.

Differentiating Fiscal Policy Impacts on Aggregate Demand

Fiscal Instruments and the Spending Multiplier

While an increase in government spending causes a parallel shift in the aggregate demand curve by directly changing its intercept, a change in the income tax rate causes the curve to rotate by altering its ______.

A government decides to stimulate the economy by cutting the income tax rate. Arrange the following statements into the correct causal sequence that describes how this policy action affects the aggregate demand curve.

Evaluating Fiscal Stimulus Options

Alternative Fiscal Instruments for Economic Stabilization