Which one of the following is TRUE about the effects of fiscal policy?
A)A decrease government spending will increase aggregate supply.
B)A tax change does not have any direct or indirect effects on aggregate demand.
C)A decrease in government spending will decrease aggregate demand.
D)An increase in government spending will reduce aggregate demand.

Question

Quizplus · Accepted Answer

A decrease in government spending will reduce the amount of money in the economy, leading to a decrease in consumption, investment, and net exports, thereby causing a decrease in aggregate demand. Option A is incorrect because a decrease in government spending will decrease aggregate demand, not increase aggregate supply. Option B is false because a tax cut will lead to an increase in disposable income, thereby boosting consumption demand, and an increase in aggregate demand. Option D is incorrect because an increase in government spending will increase aggregate demand, not decrease it.

Which One of the Following Is TRUE About the Effects