Which of the following would have the greatest contractionary effect on the economy?

Question

Quizplus · Accepted Answer

A decrease in government purchases of goods and services by $100 million directly removes this amount from the economy, reducing aggregate demand immediately. Increases in taxes or decreases in transfer payments indirectly affect spending by reducing disposable income, but the immediate impact on aggregate demand is typically less direct and potent than a cut in government spending on goods and services.

Which of the Following Would Have the Greatest Contractionary Effect