ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Decreasing government spending tends to slow economic activity as the government purchases fewer goods and services from the private sector. Increasing tax revenue tends to slow economic activity by decreasing individuals’ disposable income, likely causing them to decrease spending on goods and services.

Detailed explanation-2: -Fiscal Deficit: Fiscal deficit is the difference between the government’s total. expenditure and its total receipts excluding borrowing. Gross fiscal deficit = Total expenditure – (Revenue receipts +

Detailed explanation-3: -When government spending decreases, regardless of tax policy, aggregate demand decrease, thus shifting to the left.

Detailed explanation-4: -The tax multiplier is smaller in absolute value than the government expenditure multiplier because the government expenditure affects the total expenditure and taxes through the multiplier. The tax multiplier also influences the disposable income which affects the overall consumption level.