How does fiscal policy might be used to increase aggregate demand?

Question

:)

Answer 1

Various tax incentives can encourage certain types of consumption. Obviously encouraging consumption <=> increasing aggregate demand. This is known as the tax multiplier.

Government spending can also increase aggregate demand through the "government spending multiplier" --- if the government provides jobs, people have money to spend, etc.

Answer 2

With fiscal policy interest rates can be reduced making it easier for people or corporations to borrow money. With this newly acquired yet borrowed money, more people or corporations can afford to make purchases of various items thus increasing "aggregate demand."

If interest rates are reduced by the Fed, makers of fiscal policy, then more people can afford a mortgage and so more people why buy houses thus increasing the housing demand as an example.

Answer 3

when it's used to buy votes, with different types of subsidies, tax credits, and spending.