What is the impact of fiscal stimulus on GDP and price level?

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A fiscal stimulus can lead to an increase in the GDP and price levels. Fiscal stimulus refers to a rise in government spending or a reduction in taxes. Government spending can be grouped into two broad categories: capital and revenue expenditure. Capital expenditure refers to spending on infrastructure projects. When the government decides to build more roads, they entice more firms to set up shop near the area. As a result, total output or GDP increases because these firms will stimulate the economy by increasing their production...

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