Question

connect Question 10 of 19 10.00 points Everything else equal, which of the following will have a bigger effect on aggregate demand and GDP $100 million reduction in taxes or a $100 million increase in government spending? The increase in gove spending which OOP and income direct we hav e t he decrease in taxes, which must go through consumption to alect GOP The increase in government spending which has shorter lags will have a bigger effect than the decrease in which must go through government lags The increase in government spending which though consumption to affect GDP will have a bigger effect than the decrease in tres, which affects GDP and income directly The decrease in taxes which affects GOP and income directly will have a bigger the increase in government spending, which must go through consumption to affect GDP Is everything else equal in practice? No Government spending and taxation millors are influenced by lags, which once the effectiveness of policies No Government spending can result in crowding out which drives up interest rates and discourages sending in the ports of the economy Yes Economists and politicians again the prin on the relative strength of the government spending and taxation multipliers Yes. The effect of crowding out is predictable in all sectors of economy References eBook & Resources Multiple Choice Leaming Cheve 200 Calculate the teamu ber for spending and on and explain w o rters for these two Section Derving the

Answer 1

Option A is correct. . This can also be seen from their respectiv Multiplies. The government spending multiplier Tok and the tax multiplier is = -4pc/1 - MPC. Therefore, government Spending hos ostronger effect on the income of the economy than the tosi Changes .. when the ton rate is reduces the dis- Posable income would change which is a component of consumption and then the level of consumption and CADP would be offected da t a a, option B is correct crovernment spending is financed by the lay from the loanble funds norkel which increase the dessary for loong driving the interest rate up, which have o negative relationship with the Private investment, and it crowds out.