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DanielleElmas [232]
3 years ago
14

The economy is growing far too quickly, as high aggregate demand is causing inflation. a. What fiscal policy should be pursued i

n this instance? fiscal policy. b. What will be the effect of the appropriate policy on aggregate demand? Aggregate demand will shift to the _____ .
Business
1 answer:
nika2105 [10]3 years ago
6 0

Answer:

(a) Contractionary fiscal policy

(b) Aggregate shifts leftwards

Explanation:

Fiscal policy is a tool that is used by the government of a nation to control the fluctuations in the aggregate demand.

In this type of situation, government prefer to implement contractionary fiscal policy in the following form:

(1) Decreases government spending

(2) Increases taxes

When government increases taxes then as a result there is a fall in the consumer's disposable income. Therefore, the demand for the goods and services decreases in this economy and shifts the aggregate demand curve leftwards.

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