What is the total impact on aggregate demand because of a fiscal stimulus?
A) The amount of the initial increase in government spending
B) The changes in consumer spending,but not the change in government spending
C) The initial injection plus all subsequent increases in consumer spending triggered by the stimulus
D) The initial injection plus the consumption increase in the first round

Question

Quizplus · Accepted Answer

The total impact on aggregate demand because of a fiscal stimulus is the initial injection of government spending plus all subsequent increases in consumer spending triggered by the stimulus. This is because the increase in government spending leads to an increase in disposable income and therefore, an increase in consumption. As consumption increases, firms respond by increasing production and employment, further increasing aggregate demand. Therefore, the total impact on aggregate demand is the sum of the initial injection and all subsequent increases in consumer spending.

What Is the Total Impact on Aggregate Demand Because of a Fiscal