Because government spending has _____ effect on aggregate demand, changing government spending has a _____ impact on output compared to a change in taxes.

Question

Quizplus · Accepted Answer

Government spending has a direct effect on aggregate demand because it directly adds to the total demand in the economy. Changing government spending has a larger impact on output compared to a change in taxes because every dollar of government spending directly increases aggregate demand, whereas tax changes affect demand indirectly by altering disposable income.

Because Government Spending Has _____ Effect on Aggregate Demand, Changing