Asked by Narendrakumar Chowdary on Jun 24, 2024
Verified
Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?
Multiplier
The factor by which changes in spending will affect the aggregate income level of an economy; often used in the context of the Keynesian economic multiplier effect.
Crowding-Out
A concept where increased government spending leads to reduced investment in the private sector, often due to higher interest rates.
Investment-Accelerator Effects
The phenomenon where an increase in national income or output leads to a disproportionately larger increase in investment expenditure.
- Comprehend the function and processes of fiscal policy in maintaining economic stability.
- Elucidate the impact of fiscal policy on economic conditions in the short-term and long-term perspectives.
Verified Answer
CM
cortney marshallJun 28, 2024
Final Answer :
The increase in expenditures means that government spending rises. The aggregate demand curve shifts to the right. Aggregate demand shifts farther if there is a multiplier effect or an investment accelerator and shifts less if there is crowding out or if taxes are raised to increase government expenditures.
Learning Objectives
- Comprehend the function and processes of fiscal policy in maintaining economic stability.
- Elucidate the impact of fiscal policy on economic conditions in the short-term and long-term perspectives.