The Influence On Fiscal Poilcy On Aggregate Demand

Question 1

What is fiscal policy

Answer 1

It is the setting of the level of government spending and taxation by government policymakers.

Question 2

What is the multiplier effect

Answer 2

It is the additional shifts in aggregate demand that result when expansionary fiscal policy increases and thereby increases consumer spending.

Question 3

The positive feedback from demand to investment is sometimes called the investment accelerator.
A. True
B. False

Answer 3

True

Question 4

What does MPC Stand for

Answer 4

Marginal Propensity to consume

Question 5

What is the Marginal Propensity to Consume

Answer 5

It is the fraction of extra income that a household consumes rather than saves.

Question 6

What is the formula for the Multiplier effect

Answer 6

Multiplier = 1/(1-MPC)

Question 7

What is the Crowding-out effect

Answer 7

It is when the government reduces national savings by running a budget deficit, the interest rate rises, and investment falls.

Question 8

What is the crowding-out effect on investment

Answer 8

It is the offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces investment spending.