Explain how your policy would help increase aggregate demand. That is, does it increase C, I, G, or X?
Explain what would happen to prices (i.e. inflation).
You may use either the Modern Keynesian model or the Classical Model to conduct your analysis. Just be sure to note which one you are using.
1. Which component(s) of GDP are affected by your policy?
2. Which theory did you use for your analysis? This will determine the predicted outcomes in terms of inflation.
3. What happens to the short-run price level (i.e. inflation) in this model after a fiscal policy such as in your example?