The government has decided to give every resident a $1000 coupon that they can use to purchase their choice of a new car. We would expect this policy to lead to

Question

Quizplus · Accepted Answer

Although the policy would lead to an increase in aggregate demand, it would not be equivalent to the full impact of all of the coupons redeemed due to some direct expenditure offset. Some individuals may choose to save the coupon and not use it towards the purchase of a new car, which would result in a direct expenditure offset. Additionally, the policy may lead to a substitution effect, where some individuals who were already planning on purchasing a car would simply use the coupon to buy the same car they were already planning to purchase, rather than buying a new car they otherwise wouldn't have.

The Government Has Decided to Give Every Resident a $1000