A expansionary fiscal policy is shown as a: rightward shift in the economy's aggregate demand curve. Suppose that the economy is in the midst of a recession.
What is demand curve?
- The demand curve will move downward from the left to the right, which expresses the law of demand—as the price of a given commodity increases, the quantity demanded decreases, all else being equal.
- Note that this formulation implies that price is the independent variable, and quantity the dependent variable. In most disciplines, the independent variable appears on the horizontal or x-axis, but economics is an exception to this rule.
- For example, if the price of corn rises, consumers will have an incentive to buy less corn and substitute it for other foods, so the total quantity of corn consumers demand will fall.
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