Government Spending - AD

Question 1

What does the impact of government spending on AD depend on?

Answer 1

If government spending and tax rise by the same amount, then there is likely to be no overall increase in demand as people have less disposable income

Question 2

How does the government react to a recession?

Answer 2

Government may increase spending in order to increase demand to reduce unemployment. Government spending also automatically rises during a recession as they have to spend more on unemployment benefits

Question 3

How does the government react to a boom in the economy?

Answer 3

The government may decrease spending to decrease demand and reduce inflation

Question 4

What is fiscal policy?

Answer 4

Fiscal policy is the decisions about government spending and taxes and it will depend on the priorities of the government. The level of government spending depends on what they lay out in their fiscal policy

Question 5

How does age distribution affect government spending?

Answer 5

An ageing population leads to increased government expenditure on pensions. The more dependents in the economy, the higher government spending tends to be