Answered: Show and explain how an expansionary…

Show and explain how an expansionary fiscal policy can cause crowding-out effect by using aggregate expenditure and aggregate output curves.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 5P

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Concept explainers

Fiscal Policy and Money Market

Fiscal policy is one of the important tools that is used by the government to control inflation or aggregate demand in the economy. Under this policy, there are two rules which are used by the government, one is the expenditure of the government and the other is the taxation or income of the government which it collects from the public.

Question

3)Show and explain how an expansionary fiscal policy can cause crowding-out effect by using aggregate
expenditure and aggregate output curves.
2)What action could the TCMB take to reduce the crowding-out effect of an expansionary fiscal policy?
1)By using graphs, show and explain the effects of an expansionary fiscal policy on the goods market by taking the
link between two markets into account

Definition Definition Total supply of goods and services in an economy at a certain price level in a specific time period.

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