If the government raised transfer payments by $100 million while reducing its own purchases of computers by $100 million, we would expect the net effect of these actions to be
A)an increase in aggregate demand, which is a rightward shift of the aggregate demand curve
B)an increase in aggregate demand, which is a leftward shift of the aggregate demand curve
C)a decrease in aggregate demand, which is a rightward shift of the aggregate demand curve
D)a decrease in aggregate demand, which is a leftward shift of the aggregate demand curve
E)to leave the aggregate demand curve unchanged

Question

Quizplus · Accepted Answer

Transfer payments are a component of government spending and reducing government purchases of computers affects the component of investment spending. Both of these actions, increasing transfer payments and reducing government purchases of computers, should shift the aggregate demand curve to the left, decreasing aggregate demand. Therefore, the correct answer is D.

If the Government Raised Transfer Payments by $100 Million While