Impacts of expansionary fiscal policy

The impacts of expansionary fiscal policy
Expansionary fiscal policy involves government attempts to increase aggregate demand. It will
involve higher government spending and / or lower tax. In theory, higher government spending will
increase aggregate demand (AD=C+I+G+X-M) and lead to higher economic growth.

Expansionary Fiscal Policy




Lower taxes should increase…

Crowding Out
Does crowding out occur? Expansionary fiscal policy involves higher spending and more
government borrowing it could cause crowding. This means that although the government spend
more because they borrow from private sector, the private sector have less to spend and invest.
Therefore, overall AD doesn't increase.

Timing of…