What are the components of fiscal policy? Explain how fiscal policy affects aggregate demand

What will be an ideal response?


Fiscal policy affects aggregate demand through government expenditure, transfer payments and taxes. Because government purchases are a component of total spending, a change in government expenditure directly changes aggregate demand. A change in transfer payments changes disposable income which, in turn, changes consumption expenditure and aggregate demand. Finally, taxes alter disposable income and thus impact consumption expenditure and aggregate demand.

Economics

You might also like to view...

When a macroeconomic aggregate is procyclical

A) it grows faster than GDP. B) its deviations from trend generally change before the deviations from trend in GDP do. C) its deviations from trend generally change more that the deviations from trend in GDP. D) its deviations from trend are more often of the same sign as the deviations from trend in GDP.

Economics

According to the ability-to-pay principle, it is fair for people to pay taxes based on their ability to handle the financial burden

a. True b. False Indicate whether the statement is true or false

Economics

A Certificate of Deposit would be counted in which measure of money?

A. M2 B. Hard money C. M1 D. It would be counted in both M1 and M2

Economics

Variable costs vary with ________________.

Fill in the blank(s) with the appropriate word(s).

Economics