Impact of Fiscal and Monetary Policy on Aggregate Demand

The video tutorial explains fiscal and monetary policy as the two main tools governments use to influence the economy. Fiscal policy involves government spending and taxation, affecting aggregate demand by altering disposable income. Monetary policy, managed by central banks, involves controlling the money supply and interest rates to influence borrowing and spending. The video highlights how these policies can expand or contract the economy, affecting inflation, employment, and income distribution.

What are the two main tools the government uses to influence the economy?

• Fiscal and monetary policies

• Environmental and social policies

• Education and healthcare policies

• Foreign and defense policies

How does the government use fiscal policy to reduce aggregate demand?

• By decreasing government spending

• By increasing subsidies

• By decreasing taxes

• By increasing taxes

Which policy involves altering spending and taxation?

• Fiscal policy

• Monetary policy

• Health policy

• Trade policy

What is the result of increasing direct and indirect taxes?

• No change in employment rates

• Increase in foreign investments

• Increase in disposable income

• Decrease in disposable income

How does expansionary fiscal policy aim to affect the economy?

• By decreasing aggregate demand

• By reducing public debt

• By increasing aggregate demand

• By stabilizing interest rates

What is the primary focus of monetary policy according to the IB curriculum?

• Printing money

• Foreign exchange rates

• Interest rates

• Government bonds

What role do interest rates play in monetary policy?

• Control the cost of borrowing

• Set employment standards

• Regulate stock market prices

• Determine the tax rates

What effect does lowering the base rate have on aggregate demand?

• No effect on aggregate demand

• Decreases national debt

• Decreases aggregate demand

• Increases aggregate demand

What happens to aggregate demand when the government increases spending?

• It increases

• It decreases

• It remains the same

• It fluctuates unpredictably

Which of the following is a likely effect of a lower base rate in monetary policy?

• Increased borrowing and spending

• Reduced government spending

• Reduced borrowing and spending

• Increased taxation