ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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aggregate demand curve would shift to the left increasing real GDP
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aggregate demand curve would shift to the right increasing real GDP
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aggregate supply curve will shift to the right increasing real GDP
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aggregate supply curve will shift to the right decreasing real GDP
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Detailed explanation-1: -Stabilizing the economy For example, Keynesian economists would advocate deficit spending on labor-intensive infrastructure projects to stimulate employment and stabilize wages during economic downturns. They would raise taxes to cool the economy and prevent inflation when there is abundant demand-side growth.
Detailed explanation-2: -Keynes recognized that the government budget offered a powerful tool for influencing aggregate demand. Not only could aggregate demand be stimulated by more government spending-or reduced by less government spending-but consumption and investment spending could be influenced by lowering or raising tax rates.
Detailed explanation-3: -In Keynesian models, nominal shocks have real effects because nominal prices change infrequently. An increase in the average rate of inflation causes firms to adjust prices more frequently to keep up with the rising price level.
Detailed explanation-4: -These three factors are real balance effect, interest effect and foreign trade effect of the change in the price level. (with flexible prices). The sum of aggregate demand for consumption, investment and net exports increases with a fall in the price level and declines with a rise in the price level.