This is a discussion question, please read below for everything that needs to be addressed for this discussion and please…NO PLAGERISIM!
In this discussion, we should make an attempt to bring topics covered this week (government spending, debt, fiscal policy, and economic growth), closer to home as we are all faced with spending and budgeting challenges in one way or another. This week’s discussion addresses two specific issues:
When addressing the issue raised by this question, make certain you understand the following points:
An increase in government spending or a decrease in taxes will increase aggregate demand and shift the AD curve to the right.
A decrease in government spending or an increase in taxes will decrease aggregate demand and shift the AD curve to the left.
Changes in government spending affect aggregate demand directly because it is a direct component of AD (Y = C + I + G + NX).
Changing taxes affects aggregate demand indirectly.
Government policy actions that lead to increases in aggregate demand are called expansionary policies.
Government policy actions that lead to decreases in aggregate demand are called contractionary policies.
The use of fiscal policy is straightforward with regards to stabilizing the economy through the use of fiscal policy but the implementation of effective policy is much more difficult.