Answer:
An increase in AD can expand real output and employment without causing much inflation.
Explanation:
John Maynard Keynes was a British economist born on the 5th of June, 1883 in Cambridge, England. He was famous for his brilliant ideas on government economic policy and macroeconomics which is known as the Keynesian theory. He later died on the 23rd of April, 1946 in Sussex, England.
Fiscal policy in economics refers to the use of government expenditures (spending) and revenues (taxation) in order to influence macroeconomic conditions such as Aggregate Demand (AD), inflation, and employment within a country. Fiscal policy is in relation to the Keynesian macroeconomic theory by John Maynard Keynes.
A fiscal policy affects combined demand through changes in government policies, spending and taxation which eventually impacts employment and standard of living plus consumer spending and investment.
According to the Keynesian theory, government spending or expenditures should be increased and taxes should be lowered when faced with a recession, in order to create employment and boost the buying power of consumers.
Aggregate demand (AD) can be defined as the total quantity of output (final goods and services) that is demanded by consumers at all possible price levels in an economy at a particular time.
On a standard Aggregate demand (AD)-Aggregate supply (AS) curve, the y axis denotes the Price (P) of goods and services while the x axis typically denotes the Output (Q) of final goods and services.
Hence, in the Keynesian conception of the Aggregate demand-Aggregate supply (AD/AS) model, an increase in aggregate demand (AD) can expand real output and employment without causing much inflation. Inflation can be defined as the persistent general rise in the price of goods and services in an economy at a specific period of time.
Generally, inflation usually causes the value of money to fall and as a result, it imposes more cost on an economy.
