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Fiscal Policy

Does expansionary fiscal policy inject money into the economy because government spending is an injection into the flow of income- which is why it causes inflation?

Reply 1

Sam.T.

Yes, Government Spending is an injection

Also as a component of AD, an increase in Government Spending will increase AD, creating Demand-Pull Inflation

Reply 2

Christiantaylor

Original post by Sam.T.

Yes, Government Spending is an injection

Also as a component of AD, an increase in Government Spending will increase AD, creating Demand-Pull Inflation

Thanks! If businesses take out more loans from lower interest rates, does that increase Investment and hence increases AD, shifting it out and increasing price level?

Reply 3

Sam.T.

Original post by Christiantaylor

Thanks! If businesses take out more loans from lower interest rates, does that increase Investment and hence increases AD, shifting it out and increasing price level?

Yes 👍

Reply 4

Christiantaylor

I have one more econ question, ppp is basically the two prices of a basket of the same goods in two countries- and those prices is the exchange rate. So is £100 of goods is $200, then that’s the exchange rate according to ppp?