Which factor does NOT influence the final impact on price from fiscal policy?
Understand the Problem
The question is asking which of the provided options does not affect the final impact on price as a result of fiscal policy. This involves understanding how fiscal policy interacts with factors like consumer sentiment, aggregate demand (AD), government spending, and short-run aggregate supply (SRAS).
Answer
Full employment does not influence the final price impact of fiscal policy.
Crowding out, inflation expectations, and interest rates affect prices. Full employment reduces fiscal policy's price impact; hence, it doesn't influence price changes from fiscal policy.
Answer for screen readers
Crowding out, inflation expectations, and interest rates affect prices. Full employment reduces fiscal policy's price impact; hence, it doesn't influence price changes from fiscal policy.
More Information
When an economy is at full employment, fiscal policy tends to affect prices less, as there is no slack in the economy to boost output.
Tips
A common mistake is assuming that all macroeconomic conditions affect fiscal policy's price impacts. Understanding the difference between output and price reactions is key.
Sources
- Fiscal Policy - Econlib - econlib.org
- 8 Fiscal Policy and Macroeconomic Management - IMF eLibrary - elibrary.imf.org
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