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A)Which specific tools does fiscal policy use? Answer: B)Why is fiscal policy aimed at aggregated demand...

A)Which specific tools does fiscal policy use? Answer:

B)Why is fiscal policy aimed at aggregated demand (AD) and not aggregate supply (AS)? Answer:

C)Why is supply-side fiscal policy considered to be a slap in the face to John Maynard Keynes? Answer:

D)What is the ultimate goal of expansionary fiscal policy, and b) what is the ultimate goal of contractionary fiscal policy? Answer:

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Answer #1

a) Fiscal policy use change in the tax rate and change in the government purchases as tool to stimulate the economy.

b) Use of fiscal policy to stimulate the economy was recommended by Keynes, who believed that increasing the demand in the economy should be the main concern of the policy makers as the supply will automatically catch up and fulfil the demand, so its the demand that should be the focus of the economy.

c) Supply side fiscal policy was exact opposite of what keynes advertised, it failed the demand side economics of Keynes.

d) Expansionary fiscal policy is to increase the demand by cutting the taxes and increasing the government expenditure, contractionary fiscal policy is to decrease the demand by increasing the taxes and decreasing the government purchases.

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