Higher
Aggregate Demand may create jobs if the unemployment in existence in the economy is caused by a lack of demand for goods and services. However, it may
well be that firms are looking to take workers on, but they cannot because the unemployment is caused by workers not having the skills required by industry. For
example, if there is a demand for non-manual workers, but most of the unemployed are trained in manual work, then firms may find a lack of suitable applicants to fill vacancies. In such circumstances, the unemployment is said to be '
Structural unemployment.' Expansionary fiscal
policy will do nothing to alleviate structural unemployment.
This criticism can also be raised with regards inflation. If inflation is caused by too much aggregate demand, then deflationary fiscal policy may help to reduce it. However, if the inflation is caused by rising raw material costs and rising factor costs, then fiscal policy may be powerless in the fight against inflation.
Cletus_the_Foetus says: As aggregate supply rises, firms will be in increasingly better positions to sponsor new training for potential employees. Inflation is not caused by "too much" aggregate demand (whatever that would mean) but credit expansion; increase in aggregate supply is deflationary and makes education cheaper.