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The use of government spending and taxing by Congress in order to influence conditions in the macroeconomy is called fiscal policy. When government expenditures exceed net taxes, a budget deficit exists. When government expenditures are less than net taxes, a budget surplus exists.
Keynes recommended the use of expansionary fiscal policy when the economy experiences a depression. According to this analysis, the government can cause aggregate demand to shift to the right by decreasing taxes taxes or by increasing government spending. When aggregate demand increases, the economy’s equilibrium level of output increased so there are more jobs and the rate of unemployment decreased
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