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Using the aggregate expenditures model, answer the questions below to show how government fiscal policy could eliminate either a recessionary expenditure gap or an inflationary expenditure gap.

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21. Which of the following events may lead to deflation? A. decrease in government spending during a rapid expansion B. decrease in government spending during a severe contraction C. increase in government spending during a very deep trough D. increase in the rate of government hiring at the peak of a cycle

With reference to 'Automatic Fiscal Stabilisers (AFS) Define what you understand by the term Automatic Fiscal Stabilisers and provide an explanation as to how 'Automatic Fiscal Stabilisers may work within the UK economy. What would be the problems that may arise when automatic stabilisers begin to take effect. Use diagrams if needed.

(Figure: Fiscal Policy Options) Use Figure: Fiscal Policy Options. If the aggregate demand curve is AD': Price level LRAS SRAS AD" AD

One criticism of the fiscal policy ineffectiveness is because: A.the velocity of money is predictable. B.it is dependent on Congress' approval. C.the crowding-out effect increases investment. D.prices and wages are sticky in the short run.

Explain any two causes of deflationary gap in an economy?