When Parliament reduces spending in order to balance the budget, what does it need to consider?
A) the short-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth
B) the short-run effects on aggregate demand and aggregate supply, and the short-run effects on saving and growth
C) the long-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth
D) the long-run effects on aggregate demand and aggregate supply, and the short-run effects on saving and growth

Question

Quizplus · Accepted Answer

When Parliament reduces spending to balance the budget, it must consider both the short-run effects on aggregate demand and aggregate supply, due to the immediate impact on economic activity, and the long-run effects on saving and growth, as fiscal consolidation can influence the economy's growth potential and savings rate over time.

When Parliament Reduces Spending in Order to Balance the Budget