In this article we will discuss about the role of Aggregate Demand (AD) and Aggregate Supply (AS) in the Keynesian Model, explained with the help of a suitable diagram. In the Keynesian model an important role is played by aggregate demand, which consists of four components. First, there is household consumption, the main component of aggregate demand. Secondly, there is [...]
Let us make an in-depth study of the Proportional Tax Function and the Balanced Budget Multiplier. If we consider the SKM without foreign trade, i.e., if we take a closed economy the BBM can be less than one if we change the usual assumption about the tax function. Normally, in the SKM with government we take taxes as fixed. In [...]
The below mentioned article provides quick notes on the Fiscal Policy for Stability. Two important tools of fiscal policy are G and T. These two instruments can be varied to offset the effects of undesirable changes in private investment spending, which is the most volatile component of aggregate demand (desired expenditure). The government can make appropriate use of G and [...]