Expansionary fiscal policy increases the price level and increases equilibrium real GDP.
Given an incomplete sentence related to the expansionary fiscal policy and effect on price level.
We are required to fill the sentence with appropriate effects in the blanks so that we will get the appropriate results.
Fiscal policy is the policy related to the government expenditures.
Expansionary fiscal policy means the increase in the expenditure of government. When there is increase in government expenditure in the economy, there will be increase in total output in the economy and the demand of output also increases due to increase in the income in the economy which results in the increase in the price level of the economy.
Hence expansionary fiscal policy increases the price level and increases equilibrium real GDP.
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