How Do Transfer Payments and Taxes Affect Aggregate Spending

question 97

Multiple Choice

How do transfer payments and taxes affect aggregate spending?  

• A) Transfer payments and taxes affect aggregate spending directly, just as consumption does. 
• B) Transfer payments and taxes affect aggregate spending indirectly, by first changing disposable income and thereby changing consumption. 
• C) Transfer payments and taxes do NOT affect aggregate spending. 
• D) Transfer payments and taxes affect aggregate spending indirectly, by first changing national income and thereby changing consumption.

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Definitions:

Statement of Cash Flows

An accounting document that illustrates adjustments in balance sheet figures and their effect on cash and similar resources, dividing the analysis among operating, investing, and financing sectors.

Indirect Method

A cash flow statement approach that adjusts net income for non-cash transactions and changes in working capital.

Operating Activities

Transactions and events that pertain to the primary business operations, impacting the net income and involving cash flows related to operating expenses and revenues.

Indirect Method

A method for preparing cash flow statements where net income is adjusted for changes in balance sheet items to compute cash from operating activities.