15.Suppose that consumers become pessimistic about the future health of the econ

ID: 1166617 • Letter: 1

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15.Suppose that consumers become pessimistic about the future health of the economy.

What will happen to aggregate demand and to output? explain in 50 words

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What might the government have to do to keep output stable using Fiscal Policy? explain in 50 words

Explanation / Answer

If the consumers become pessimistic about the future health of the economy, they will cut their expenditure meaning decrease the consumption. This will shift the aggregate demand to the left because the aggregate demand decreases and the output will fall.

If the government wants to decrease output, it will use contractionary fiscal policy by increasing the taxes or decreasing the government spending. If the government wants to increase the output it will use expansionary fiscal policy by increasing the government spending or decreasing taxes.

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15.Suppose that consumers become pessimistic about the future health of the econ

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