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 decrease the amount of money flowing into the economy, meaning that people will have less money to spend, and businesses will have less money to invest in expansion or hiring. This reduction in spending will cause a decrease in aggregate demand. Option A is incorrect because a decrease in government spending would not increase aggregate supply. Option B is incorrect because a tax change can have direct or indirect effects on aggregate demand, depending on the nature of the tax change. Option D is incorrect because an increase in government spending would increase aggregate demand, not reduce it.

Which One of the Following Is True About the Effects