How Does an Increase in Government Transfer Payments Affect Aggregate

question 39

Multiple Choice

How does an increase in government transfer payments affect aggregate demand?

• A)It has the same effect as a tax increase, which lowers AD with a larger multiplier than a spending decrease.
• B)It has the same effect as a tax cut, which increases AD but with a smaller multiplier than a change in spending.
• C)It has the same effect as a spending increase, which increases AD with a larger multiplier than a tax cut.
• D)It has the same effect as a spending decrease, which increases AD with a larger multiplier than a spending decrease.

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Definitions:

Behavioural Decision Model

refers to a framework considering the psychological, cognitive processes individuals use in making decisions, highlighting biases and heuristics that influence judgment.

Risk and Uncertainty

The exposure to the possibility of loss or adverse outcomes in decision-making situations where the probabilities of various outcomes are not known.

Lack-Of-Participation Error

The potential distortion in judgment or decision-making caused by some participants not being actively involved or contributing to the process.

Decision's Implementation

The process of putting a chosen decision or strategy into action within an organization to achieve specific objectives.