Fiscal policy : government spending and taxation in order to influence AD ; AD= C+I+G+X-M and the level of economic activity.
purpose is to keep inflation low:2%, create economic growth, and stabilise the economy.
there are two types. Expansionary expansion; the govt does this by decreasing taxes, increasing spending eg infrastructure, education, health care, but this will increase govt budget deficit. this will increase AD.
deflationary/contractionary; tight; increase taxes,; decrease consumer spending decrease govt spending this will decrease AD and improve govt budget deficit.
injections in the circular flow; govt spending, exports and investments. GEI
withdrawals include imports, savings and taxes TIS
assess the impact of govt spending on education and heathcare
-govt spendng is an aspect of AD so it will increase AD and potentially economic growth. there will also be an icrease in govt borrowing to fund the expenditure.
this increase in AD may cause inflation; this is not guaranteed because if the country in=s in a recesion, then an increase in govt spending will not cause inflation however, if the economy is at full capacity, then an increase will cause inflation. In the long run, investing in education and…