通脤問題?

When a government increases its spending, this would increase the aggregate demand of an economy because AD(aggregate demand)=C(consumption)+I(Investment)+G(Government spending)+X(Exports)-M(Imports). So, if the government increase its spending, AD would increase as a positive factor in the equation increases. The aggregate demand curve would shift to the right which could lead to an increase in price level causing extra inflationary pressure to the economy.

When a government reduces taxes, so workers could keep more of their income as smaller part of their income will be taxed(income tax). as they have more disposable income, they are more likely to spend more money. As a result, consumption in the economy would rise which leads to an increase in aggregate demand (AD=C+I+G+X-M). This would shift the AD curve to the right and increase the price level in the economy. This would cause inflation.

Whether two points below are bad to the economy or not, depends on the stage of business cycle the economy is at. If the economy is at a boom stage, extra inflationary pressure would be bad ass the inflationary pressure is already high during the boom period. However, if the economy is at the recession stage where there are high unemployment and low inflation, an increase in aggregate demand would be good because it could reduce unemployment and ,also, the increase inflationary pressure wouldn't be a significant problem

Th.ere would be another effect if government reduce taxes for businesses. If government reduce taxes on businesses' profit which is used to re-invest back to the business, this would encourage firms to invest, e.g. buying new machines. In short term, this would increase Investment in the economy leading an increase demand ( increase in I ) and might cause inflation.However, In long term, as new machines work more efficient than the old machine, this would increase productivity leading an increase increase in aggregate supply which would decrease inflation.