Fiscal policy consists of intentional changes in the government's spending levels or tax policies designed to achieve specific macroeconomic goals such as full employment, price stability, or economic growth. By influencing the amount of total spending in the economy, the government can influence the position of the aggregate demand curve. Our theory tells us that aggregate demand will shift by a multiple of the change in spending or taxes. However, spending and tax changes have slightly different effects, as changes in taxes affect spending only indirectly by changing the amount of disposable income. An expansionary fiscal policy may be implemented to fight a recession, while a contractionary policy may be appropriate to control demand-pull inflation. Exploration: How do changes in government spending and taxes affect the equilibrium price level and real GDP? Discuss in detail use your economics textbook.
Fiscal policy consists of intentional changes in the government's spending levels or tax policies designed to achieve specific macroeconomic goals such as full employment, price stability, or economic growth. By influencing the amount of total spending in the economy, the government can influence the position of the aggregate demand curve. Our theory tells us that aggregate demand will shift by a multiple of the change in spending or taxes. However, spending and tax changes have slightly different effects, as changes in taxes affect spending only indirectly by changing the amount of disposable income. An expansionary fiscal policy may be implemented to fight a recession, while a contractionary policy may be appropriate to control demand-pull inflation. Exploration: How do changes in government spending and taxes affect the equilibrium price level and real GDP? Discuss in detail use your economics textbook.
Chapter21: Fiscal Policy
Section: Chapter Questions
Problem 3SQP
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Fiscal policy consists of intentional changes in the government's spending levels or tax policies designed to achieve specific macroeconomic goals such as full employment, price stability, or economic growth . By influencing the amount of total spending in the economy, the government can influence the position of the aggregate demand curve. Our theory tells us that aggregate demand will shift by a multiple of the change in spending or taxes. However, spending and tax changes have slightly different effects, as changes in taxes affect spending only indirectly by changing the amount of disposable income. An expansionary fiscal policy may be implemented to fight a recession, while a contractionary policy may be appropriate to control demand-pull inflation.
Exploration: How do changes in government spending and taxes affect the equilibrium price level and real GDP ? Discuss in detail use your economics textbook.
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