Question

Does fiscal policy have a strong impact on aggregate demand? Did the shift of the federal budget from deficit to surplus during the 1990s weaken aggregate demand? Did the government spending increases and large budget deficit of 2008-2011 strengthen aggregate demand? Discuss.

Answer 1

Ans. Yes fiscal policy have strong impact on aggregate demand. Fiscal policy affects aggregate demand through changes in governmnets spending and taxation.Government's spending and taxation effects income of the individuals i and due to this reason individals 's income his spending also chnages.Aggregate demand measures economy's gross domestic product (GDP). Aggregate demand is AD= C+ I+G+XM, where as C is consumption expenditure, Investment expenditure, G is Government expenditure, and XM is xepot minus import. If government changes its fiscal policy then every thing will change and aggregate demand will be affected .

Fiscal policy in 1990 is the heart of the debate topic in 1990s as it helped to increase in aggregate demand and gave a surplus budget in 1990.

Yes U.S Government had increased its spending to overcome its budget deficit for example in medicare,social security , State Childeren Health Program, UNITED state department of defence, united state department of health and security, education , trasnport, energy, justice,labour , administration and small business administration. This way U.S government strenthen their economy by the end of 2011.