Expenditure Reducing

• What can be used to reduce aggregate demand (AD)?

  Monetary or fiscal policy
• How does reducing aggregate demand affect income and imports?

  It reduces income, which decreases demand for imports
• Why should reducing aggregate demand be effective in relation to imports?

  Because there is high income elasticity for imports
• What are the limitations of using monetary or fiscal policy to reduce aggregate demand?

  They are only short term and limit output of the economy
• What are the consequences of limiting output in the economy?

  It causes a reduction in living standards and growth
• What effect does deflationary fiscal policy have on domestic demand?

  It dampens domestic demand
• What can happen when domestic demand is dampened by deflationary fiscal policy?

  Output may fall
• What is the relationship between falling output and GDP growth?

  When output falls, GDP growth slows
• What may increase as a result of slowing GDP growth?

  Unemployment may increase