Question

q5. The government can use ________ in the form of ________ to increase the level of aggregate demand in the economy.

• an expansionary fiscal policy; an increase in corporate taxes
• a contractionary fiscal policy; a reduction in taxes
• an expansionary fiscal policy; an increase in government spending

q6. If Congress passed a new budget that increased taxes it would

• reduce the gross domestic product to a new equilibrium as it rises and the aggregate demand rose.
• increase the gross domestic product to a new equilibrium as aggregate demand rose
• reduce the gross domestic product to a new equilibrium as aggregate demand fell.

Answer 1

Fiscal policy is used by the government and for fiscal policy government either change government expenditure or change in the taxes.

In Contractionary fiscal policy, therefore government either decreases the government spending or increase tax.

Since the expansionary fiscal policy means either an increase in the government expenditure or decrease in the tax. This policy is used for increasing aggregate demand.

Hence it can be said that the government can use expansionary fiscal policy in the form of an increase in government spending to increase the level of aggregate demand in the economy.

Hence option third is the correct answer.

2.

Fiscal policy is used by the government and for fiscal policy government either change government expenditure or change in the taxes.

In Contractionary fiscal policy, therefore government either decreases the government spending or increase tax.

AD=C+I+G+X-M

· Hence it can be said that if Congress passed a new budget that increased taxes reduce the gross domestic product to a new equilibrium as aggregate demand fell.

Hence option fourth is the correct answer.