ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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if AS decreases less than AD decreases
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if AS increases more than AD increases
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if the AS increase equals the AD increase
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if AS decreases more than AD increases
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if AS decreases more than AD decreases
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Detailed explanation-1: -Expansionary Fiscal Policy – AD/AS Impact of expansionary fiscal policy – increases AD and leads to higher real GDP and inflation.
Detailed explanation-2: -A contractionary fiscal policy means a rise in taxes and a decrease in government expenditure. This causes aggregate demand which means a fall in prices. The decreased demand also leads to a decrease in the real GDP.
Detailed explanation-3: -The expansionary monetary policy leads to a rise in the level of money supply in the economy as there is a reduction in the cost of borrowing. This makes individuals’ consumption level and businesses spending level to expand in the economy. As a result, there is an increment in the real GDP level of a nation.
Detailed explanation-4: -Expansionary fiscal policy tools include increasing government spending, decreasing taxes, or increasing government transfers. Doing any of these things will increase aggregate demand, leading to a higher output, higher employment, and a higher price level.