Influence of Monetary and Fiscal Policy on Aggregate Demand

Question 1

Fiscal policy refers to

Answer 1

the government’s choices regarding the overall level

of government purchases or taxes

Question 2

What does fiscal policy influence?

Answer 2

saving, investment and growth in the long run

Question 3

What does fiscal policy affect in the short run?

Answer 3

aggregate demand

Question 4

Expansionary Fiscal Policy

Answer 4

an increase in G and/ or decrease in T

shifts AD curve right

Question 5

Contractionary Fiscal Policy

Answer 5

a decrease in G and/or increase in T

shifts AD curve left

Question 6

Changes in Government Expenditure (G)

Answer 6

When the government alters its own purchases
of goods or services, it shifts the aggregate-
demand curve directly

Question 7

What can the Government do during recession?

Answer 7

During recessions government can increase its spending (construct more roads, bridges, etc).