A tax cut of $5 billion will have a greater effect on the economy than an increase in government purchases of $5 billion.

Name: A tax cut of $5 billion will have a greater effect on the economy than an increase in government purchases of $5 billion.
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Question

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According to the multiplier effect in Keynesian economics, an increase in government spending directly increases aggregate demand by a larger amount than a tax cut of the same size, because not all of the money from a tax cut will be spent immediately.

A Tax Cut of $5 Billion Will Have a Greater