Government spending affects aggregate demand directly, and tax changes affect aggregate demand indirectly.Therefore, changes in

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Quizplus · Accepted Answer

Government spending has a direct impact on aggregate demand because it injects money into the economy, while tax changes have an indirect effect because they affect disposable income and consumption. Therefore, government spending can have a more immediate impact on aggregate demand than changes in taxes. However, this does not mean that taxes are ineffective or useless as a stabilization tool, as they can still influence consumption and investment behaviors in the long run.

Government Spending Affects Aggregate Demand Directly, and Tax Changes Affect