Suppose that government wishes to affect the level of aggregate demand in the economy.All of the following,except one,are consistent policy measures.Which is the exception?
A)A tax increase and an increase in money supply
B)A tax reduction and an increase in money supply
C)An increase in government spending and an increase in money supply
D)A decrease in government spending and a decrease in money supply.

Question

Quizplus · Accepted Answer

A tax increase would decrease disposable income and decrease consumption, leading to a decrease in aggregate demand. However, an increase in money supply would lead to an increase in aggregate demand by making more funds available for investment and consumption. Therefore, these policies are inconsistent and would work against each other. The other three choices are consistent policy measures for affecting aggregate demand.

Suppose That Government Wishes to Affect the Level of Aggregate