Covid W/Expansionary Fiscal Policy

• What happens to disposable income if the expansionary policy involves tax cuts?

  Households will see an increase in disposable income.
• How does an increase in disposable income affect consumption?

  It potentially boosts consumption.
• What is a potential result of increased government spending?

  Increased demand for goods and services from businesses.
• What can higher demand for goods and services lead to in terms of employment?

  It can lead to higher employment as businesses may need to hire.
• What is 'crowding out' in the context of increased government borrowing?

  It refers to higher interest rates making borrowing for investment more expensive for businesses.
• How can expansionary fiscal policy affect asset prices?

  It can increase asset prices, leading to wealth effects that can increase consumer spending.
• What are the microeconomic effects of expansionary fiscal policy?

  1. Increase in disposable income
  2. Increased demand for goods and services
  3. Higher employment opportunities
  4. Crowding out
  5. Wealth effects
• What is one macroeconomic effect of expansionary fiscal policy?

  It can stimulate economic growth.
• How can expansionary fiscal policy affect unemployment levels?

  It can lead to reduced unemployment.
• What might happen if the economy is close to its productive capacity during expansionary fiscal policy?

  It might lead to inflation.
• What is a consequence of funding expansionary fiscal policy?

  It can increase the level of public debt.
• How can increased aggregate demand affect the current account?

  It might increase imports, leading to a larger current account deficit.
• What are the macroeconomic effects of expansionary fiscal policy during Covid?

  1. Stimulate economic growth
  2. Reduced unemployment
  3. Potential inflation
  4. Increased public debt
  5. Current account deficit