Jesus Loves Me

Published: 2021-08-31 13:50:12
essay essay

Category: Biographies

Type of paper: Essay

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The government can also increase taxes or lower government spending in order to conduct a fiscal contraction. What this will do is lower real output because less government spending means less disposable income for consumers. And, because more of consumers' wages will go to taxes, demand as well as output will decrease.

A fiscal expansion by the government would mean that taxes are decreased or government spending is increased. Ether way, the result will be growth in real output because the government will stir demand with increased spending. In the meantime, a consumer with more disposable income will be willing to buy more.

If interest rates increase, that means that people will borrow less as its now more expensive to borrow. Hence both consumption and investment will tend to decrease (corporates now find it more expensive to borrow money to finance capital, hence will purchase less capital); hence Aggregate Demand would shift to the left.

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