Which type of policy does the governments adopt to increase the aggregate demand in the economy?Contractionary fiscal policyExpansionary fiscal policyTight monetary policyLoose monetary policy
Question
Which type of policy does the governments adopt to increase the aggregate demand in the economy?Contractionary fiscal policyExpansionary fiscal policyTight monetary policyLoose monetary policy
Solution
The government adopts the Expansionary fiscal policy and Loose monetary policy to increase the aggregate demand in the economy.
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Expansionary Fiscal Policy: This policy involves the government increasing its spending or decreasing taxes. When the government spends more, it puts more money into the economy, which stimulates economic activity and increases aggregate demand. Similarly, when taxes are reduced, consumers have more disposable income to spend, which also increases aggregate demand.
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Loose Monetary Policy: This policy involves the central bank lowering interest rates or increasing the money supply. Lower interest rates make borrowing cheaper, which encourages businesses to invest and consumers to spend, thereby increasing aggregate demand. Similarly, increasing the money supply also lowers interest rates and stimulates spending and investment.
Similar Questions
A policy mix that consists of an expansionary fiscal policy and a contractionary monetary policy wouldGroup of answer choicesbe neutral with respect to the composition of aggregate spending in the economy.favor investment spending over government purchases.lead to lower interest rates.favor government purchases over investment sp
When the economy is overheating and experiencing high inflation, contractionary fiscal policy aims to: A. Increase government spending to boost aggregate demand B. Reduce taxes to encourage consumer spending C. Decrease government spending and increase taxes to reduce aggregate demand D. Lower interest rates to encourage borrowing and investment
A decline in aggregate demand has caused a recession. The economy’s current level of real GDP is below its long-run equilibrium and the current price level is below the equilibrium price level. a. Without government action, the economy will return to long-run equilibrium through multiple choice 1a decrease in aggregate supply.a decrease in long-run aggregate supply.an increase in aggregate supply.an increase in long-run aggregate supply. b. If the government implements expansionary fiscal policy after the economy has self-corrected, the increase in aggregate demand will multiple choice 2decrease both real GDP and the price level.increase both real GDP and the price level.decrease real GDP and increase the price level.increase real GDP and decrease the price level. c. The slow fiscal policy will result in multiple choice 3low interest rates.high unemployment.demand-pull inflation.cost-push inflation.
The usual aim of expansionary fiscal policy is to increaseMultiple Choiceaggregate demand.aggregate supply.both aggregate demand and aggregate supply.government spending.
The application of fiscal policy to increase aggregate demand is called a(n) fiscal policy.
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