When comparing a $100 billion increase in government expenditure to a $100 billion decrease in tax revenue, the effect of the increase in government expenditure on aggregate demand is

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Quizplus · Accepted Answer

An increase in government expenditure directly injects money into the economy, leading to a direct increase in aggregate demand. A decrease in tax revenue also increases aggregate demand but through a more indirect route, as it depends on the marginal propensity to consume out of the additional disposable income. Typically, not all of the tax savings are spent, making the impact of government spending more immediate and potent on aggregate demand compared to a tax decrease.

When Comparing a $100 Billion Increase in Government Expenditure to a $100