1. Using the aggregate demand and aggregate supply model, explain how the propos

Question

1. Using the aggregate demand and aggregate supply model, explain how the proposed fiscal policy could impact aggregate demand and real GDP? How might the proposed fiscal policy impact the deficit and the debt? (You do not need to go into detail about the specifics of the Trump policy. Just talk about this type of fiscal policy in general. Chapters 11 and 12 in the textbook will be helpful in answering this question.)

2. Based on what you have learned this semester, do you believe that the proposed fiscal policy is appropriate at this time? Why or why not? You will be graded on how well you explain and support your position.  

Explanation / Answer

1. The proposed fiscal policy is "expansionary fiscal policy" , with more expenditure and lesser interest rate. a rise in spending on public infrastructure, or a tax reduction would motivate consumers to spend more, increases demand. It would also affect aggregate supply, for example, through the incentives provided by the tax code. This might seem good for short run and so real GDP might increase, but in longer run this would create inflation which might take the form of recession.

the deficit would increase for sure as, the government has reduces taxes and increased spending at the same time, which is fulfilled by foreign debt.

2. No, I am not in support of this fiscal policy as reduced taxes and increased expenditure would somewhere discourage people to work as they will be getting everything, very easily. Moreover, it is not good for economy as the proposal in prone to unavoidable inflationary condition and budgetary deficit. Both of which are very bad for an economy.

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