InterviewSolution
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InterviewSolution
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Explain the role of (a) government spending and (b) taxation in influencing excess demand. |
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Answer» (a) Government can influence excess demand by reducing government expenditure. This will reduce aggregate demand. Aggregate supply remaining unchange, excess demand will be reduced. (b) Government can influence excess demand increasing taxation. Increasing direct tax will reduce disposable income. Increasing indirect tax will make goods and services costlier, thus reducing their demand. The overall effect will reduce excess demand. |
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