Question

Explain what types of policies the federal government may have implemented to restore aggregate demand and the potential obstacles policymakers may have encountered.

a) Expansionary fiscal policies, facing political resistance.
b) Contractionary monetary policies, hampered by inflation.
c) Increased government spending, hindered by budget constraints.
d) Tax cuts, impeded by opposition from interest groups.

Answer 1

The federal government can implement expansionary fiscal policies, such as increasing government spending or reducing taxes, to restore aggregate demand. However, obstacles such as political resistance, budget constraints, and opposition from interest groups may arise.

Step-by-step explanation:

When it comes to restoring aggregate demand, the federal government may implement expansionary fiscal policies, such as increasing government spending or reducing taxes. This can help stimulate economic growth and increase consumer spending. However, policymakers may encounter obstacles, such as political resistance to fiscal policies, which can make it difficult to pass legislation and implement these measures.

Another potential obstacle is budget constraints. Increased government spending may be hindered by limited funds and the need to manage the national budget. Additionally, tax cuts as a policy measure to restore aggregate demand may face opposition from interest groups, who may argue that it disproportionately benefits certain groups or undermines government revenue. Overall, policymakers need to navigate these obstacles and carefully consider the impact of different policies on aggregate demand and economic conditions.