Cards (9)

    • 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