Macro: Fiscal Policy And Supply-Side Policies

Question 1

What does fiscal policy involve

Answer 1

Fiscal policy involves changing government spending and taxation

Question 2

What does AD equal according to economic conditions

Answer 2

according to the economic conditions: AD = C+I+G+(X-M)

Question 3

In the AD equation what will changing G affect

Answer 3

Changing G will affect AD

Question 4

What does expansionary fiscal policy increase

Answer 4

Expansionary fiscal policy increases the level of aggregate demand

Question 5

How does expansionary fiscal policy increase the level of aggregate demand

Answer 5

By either increasing government spending or cutting taxes

Question 6

What can increasing government spending or cutting taxes do

Answer 6

This can:

• Increase consumption by increasing disposable income because of tax cuts
• Increase investment by cutting business taxes
• Increase government purchases because government spending itself rises