Answer to Question #279901 in Macroeconomics for Tenn

Question

The text describes several fiscal policy options to stabilize the economy: Changes in Government Purchases, Business Taxes, Income Taxes, and Transfer Payments. Based on what you’ve learned so far in the course, determine if the country you are living in currently needs economic stimulus or contraction. Describe how each policy option could specifically be used to change the national economy. Example: Country Z needs economic stimulus. The government could lower the business tax on buying new equipment. This would stimulate the economy because firms would have more money to invest which, in turn, increases demand in the equipment supply sector. 

Answer 1

Fiscal policy refers to the government's decision to pursue either expansionary or contractionary fiscal policies, depending on the state of the economy. For example, if the government wants to address an economy's inflation problem, it will raise taxes in the economy. As a result, there will be less money in people's hands to buy things, lowering demand and lowering inflation.

My country is undergoing a period of growth and inflation. They slashed the government's budget. Here's how it'll play out across the country: First, because government spending is a component of AD, a reduction in government spending results in a reduction in aggregate. Because a fall in AD leads to a new short-run equilibrium with lower output, increased unemployment, and lower price levels, a decrease in AD leads to a decrease in output.