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Alongside monetary policy, two federal laws were passed as a fiscal policy response to the housing crisis, one allowing the purchase of troubled mortgage assets and the other increasing infrastructure spending, tax cuts, and transfer payments. What was the shared goal of both laws?
ATo shift the aggregate supply curve to the left
BTo shift the aggregate demand curve to the left
CTo hold the price level permanently fixed
DTo shift the aggregate demand curve to the right
Answer & Solution
Correct answer: D. To shift the aggregate demand curve to the right
1. The Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009 are the two laws described.
2. One purchased troubled assets from financial institutions; the other increased infrastructure spending, cut taxes, and raised transfer payments.
3. Both kinds of measures work by increasing components of aggregate demand, mainly government spending and consumption.
4. Both were plainly designed to stimulate aggregate demand and push the AD curve to the right.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 10 "The Aggregate Demand/Aggregate Supply Model", section 10.6 | Keynes’ Law and Say’s Law in the AD/AS Model_
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