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What is Understanding Fiscal Policy and Demand about?

Fiscal policy can be used to increase aggregate demand and help pull an economy out of a recession. The government can increase spending (G) which shifts the aggregate demand curve to the right, increasing output. Higher government spending has a multiplier effect where an initial increase in G leads to further increases in output and income. However, large fiscal deficits could potentially crowd out private investment by increasing interest rates. But in a demand-constrained economy, crowding in is more li

Author

Sakshi Verma

Language

EN