Fiscal policy and monetary policy influence the level of spending in the economy by:
A) closely regulating U.S. foreign trade.
B) affecting leakages from, and injections into, the circular flow.
C) legislating required behavior of households and businesses to stabilize the economy.
D) all of the above.

Question

Quizplus · Accepted Answer

Fiscal policy (government spending and taxation) and monetary policy (control of the money supply and interest rates) influence the economy by affecting how much money is circulating and how easily it flows. They do this by impacting the levels of injections (e.g., government spending, investments) and leakages (e.g., taxes, savings) in the economy's circular flow of income and expenditure, rather than through direct regulation of foreign trade or mandating specific behaviors of households and businesses.

Fiscal Policy and Monetary Policy Influence the Level of Spending