Fiscal Policy: Government Expenditures, Revenues, Budget, Debt Fiscal Policy: Government Expenditure

Fiscal Policy: Government Expenditures, Revenues, Budget,
Debt

Fiscal Policy: Government Expenditures and Revenues, Budget,
National Debt

1 Do all government purchases have the same effect on
aggregate demand? Defend your answer with economic reasoning

2 Suppose a country increases government purchases by $100
billion Suppose the multiplier is 15 and the economy’s real GDP is $5,000
billion

a In which direction will the aggregate demand curve shift
and by how much?

b Why is the change in real GDP is likely to be smaller
than the shift in the aggregate demand curve?

3 What is “crowding out,” and how does it reduce
private investment?

a Given that only certain types of government expenditures
crowded out private investment, what are the implications for fiscal policy
choices?

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