Question

For this question, please consider monetary and fiscal policy. According to our description of AD and SRAS, which of the following is true?

monetary policy, but not fiscal policy, can shift AD

fiscal policy, but not monetary policy, can shift AD

monetary policy, but not fiscal policy, can shift SRAS

fiscal policy, but not monetary policy, can shift SRAS

None of the above are true.

Answer 1

1) fiscal policy, but not monetary policy, can shift AD

2) monetary policy, but not fiscal policy, can shift SRAS

Fiscal policy includes change in government spending or taxation which causes shift of AD curve rather than SRAS curve. Monetary policy includes change in interest rate, federal funds rate, etc which causes shift in AS curve.