Consider two fiscal policy actions. JI. a $400 billion reduction in income taxes
JII) a $400 billion increase in government purchases
JWhich policy will have a bigger impact on aggregate demand?
A) Both policies will have the exact same impact.
B) Policy II because it affects aggregate demand directly.
C) Policy I because it affects disposable income directly.
D) Policy I because it works through consumption which is the largest component of aggregate demand.
Correct Answer:
Verified
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