Fiscal Policy
...fects the aggregate demand. The spending can be on Highways, defense, and health care. The government can alter aggregate demand by: 1. Purchasing more of fewer goods and services 2. Raising or lowering taxes 3. Changing the level of income transfers. Income transfers are payments to individuals for which no current goods and services are exchanged, such as social security, welfare, unemployment benefits. In cone transfers don’t become a part of aggregate demand until the transfer recipients decides to spend that money. The Keynesian Theory was a well thought out way of keeping the economy out of recession and depression. John Maynard Keynes was the mastermind behind this project. The Keynesian theory works fairly easily. The circular flow of money is a big part of his theory. The way he explained it was; as a part of his spending becomes a apart of our earnings, a part of our spending becomes a part of his earnings. But what if consumers begin to save their money? If people start saving their money it forces him to save his money also. In the case it breaks the circular flow of money...