Government purchases of goods and services _____, while changes in taxes and transfer payments _____.
A) are exercises of fiscal policy; are exercises of monetary policy
B) are exercises of monetary policy; are exercises of fiscal policy
C) influence aggregate demand directly; influence aggregate demand indirectly
D) influence aggregate demand indirectly; influence aggregate demand directly

Question

Quizplus · Accepted Answer

Government purchases of goods and services directly influence aggregate demand by increasing or decreasing government spending, which is a component of aggregate demand. Changes in taxes and transfer payments influence aggregate demand indirectly by affecting disposable income and, consequently, consumption and investment by households and businesses.

Government Purchases of Goods and Services _____, While Changes in Taxes