Problem_Set_3_Wilson, Lisa

Therefore increasing government spending will aid in

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Therefore, increasing government spending will aid in recovering from a severe recession. On the other hand, Keynesian critics believe that increased government spending will only help in the short term. In the long run, critics argue that the economic deficit for the country will increase and the country will be in risk of another economic disaster. More specifically, “critics of Keynesian economics argue that the side effects of the increased spending and expanded debt will exert an adverse impact on both the recovery process and long-term growth” (Gwartney et al., 2013). 2. Does fiscal policy have a strong impact on aggregate demand? Did the shift of the federal budget from deficit to surplus during the 1990s weaken aggregate demand? Did the government spending increases and large budget deficits of 2008–2011 strengthen aggregate demand? Discuss. Fiscal policy wields a meek impact on aggregate demand, as the crowding-out and new classical simulations imply. Yes, during the 1990s when the deficit was converted into a surplus, it weakened aggregate demand. In Keynesian
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