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:

Valid

The degree to which a theory, outcome, or assessment is solidly based and probably mirrors the actual world accurately.

Paradigm

A distinct set of concepts, thought patterns, or methods that forms a framework for understanding, interpreting, or exploring complex phenomena.

Implicitly

In a manner that is understood or implied without being directly stated or expressed.

Group Dynamics

The study of groups and their development, structure, and interaction patterns, influencing the behavior and performance of individuals within the group.