A tax cut of $12 billion will have less effect on the economy than an increase in government purchases of $12 billion.

Question

Quizplus · Accepted Answer

An increase in government purchases will directly increase demand in the economy, leading to an increase in economic activity (and potentially employment). In contrast, a tax cut may not lead to a significant increase in consumer spending and may instead be saved or used to pay off debt. Therefore, the increase in government purchases is likely to have a greater impact on the economy than the tax cut.

A Tax Cut of $12 Billion Will Have Less Effect