Aggregate Demand - Government policies and Aggregate Demand - Fiscal policy
3 important questions on Aggregate Demand - Government policies and Aggregate Demand - Fiscal policy
What are the 2 fiscal stabilizers of the economy. Dow we use only one at a time or both?
- Government spending on final goods and services and government transfers.
- Tax policies
What does the government do during a unexpected recession? What is the name of the policy?
- by increasing government spending
- by increasing government transfers
- and decreasing taxes
- By using expansionary fiscal policy
How does expansionary fiscal policy fix an unexpected recession?
- As government expenditure increases,
- autonomous expenditure increases,
- the aggregate demand increases
- then no more recessions
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