If $500,000 in new taxes is raised and spent on building a new school and $300,000 in private spending would have been spent anyway,how much is added to short-run aggregate demand?
A) $100,000
B) $200,000
C) $300,000
D) $500,000

Question

Quizplus · Accepted Answer

The new taxes raised and spent on the school add $500,000 to aggregate demand. However, $300,000 of this spending would have occurred regardless, so the net addition to aggregate demand is $500,000 - $300,000 = $200,000.

If $500,000 in New Taxes Is Raised and Spent on Building