Which of the following would have a larger POSITIVE impact on aggregate demand? a. cutting taxes by $100 billion b. incr...
Which of the following would have a larger POSITIVE impact on aggregate demand?
a. cutting taxes by $100 billion
b. increasing government purchases by $100 billion
c. increasing taxes by $100 billion
d. decreasing government purchases by $100 billion
Homework Answers
Answer
Option b
b. increasing government purchases by $100 billion
A tax change has an inverse impact and it is less than government spending change by the amount of change as the balanced budget multiplier is 1.
Cutting tax of $100 billion has $100 billion less impact than an increase in government spending of $100 billion
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