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After the Global Financial Crisis of 2008, the US President introduced expansionary fiscal policies of $800 billion - Edexcel - A-Level Economics A - Question 1 - 2021 - Paper 2
Question 1
After the Global Financial Crisis of 2008, the US President introduced expansionary fiscal policies of $800 billion. The International Monetary Fund estimated that t... show full transcript
Worked Solution & Example Answer:After the Global Financial Crisis of 2008, the US President introduced expansionary fiscal policies of $800 billion - Edexcel - A-Level Economics A - Question 1 - 2021 - Paper 2
Step 1
Which one of the following is a withdrawal from the circular flow of income?
Answer
The correct answer is D) Taxation. This is because taxation represents money taken away from households and businesses, thereby reducing their disposable income and spending power in the circular flow of income.
Step 2
Calculate the total final increase in US aggregate demand as a result of the President's expansionary fiscal policies; assuming no other changes.
Answer
To calculate the total final increase in aggregate demand, we use the formula:
demand ext{ increase} = ext{multiplier} imes ext{initial fiscal policy amount}
Substituting into the formula:
Thus, the total final increase in US aggregate demand is $1,200 billion.