Consider Two Fiscal Policy Actions

question 147

Multiple Choice

Consider two fiscal policy actions. JI. a $400 billion reduction in income taxes
JII) a $400 billion increase in government purchases
JWhich policy will have a bigger impact on aggregate demand?

• A) Both policies will have the exact same impact.
• B) Policy II because it affects aggregate demand directly.
• C) Policy I because it affects disposable income directly.
• D) Policy I because it works through consumption which is the largest component of aggregate demand.

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Definitions:

Relationship Between Variables

Refers to how one variable may change in relation to alterations in another variable, often measured by statistical tools to understand correlations or dependencies.

Reciprocity

Reciprocity refers to a mutual exchange between two parties, often used in the social sciences to describe social interactions.

Direction

In statistics, it often refers to the nature of the relationship between variables, indicating whether they move together in a positive or negative correlation.

Pearson Correlation

A measure of the linear correlation between two variables, giving a value between -1 and 1.