Consider Two Fiscal Policy Actions

question 33

Multiple Choice

Consider two fiscal policy actions.
I. a $400 billion reduction in income taxes
II. a $400 billion increase in government purchases
Which 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:

Rent of Land

The payment made for the use of land. It is often a fixed amount paid periodically by a lessee to a lessor for the rights to use the land.

Usury Laws

Regulations governing the maximum interest rate that can be charged on a loan.

Economic Thought

The evolution and diversity of ideas and philosophies regarding how economies operate and should be managed.

Landlord's Claim

The rights or interest a landlord holds in a property, including the right to receive rent and enforce lease terms.