Which of the Following Statements Best Explains the Effects of Transfer

question 49

Multiple Choice

Which of the following statements best explains the effects of transfer payments and taxes on 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)Changes in the amount of transfer payments and taxes cancel each other and therefore have no influence on any economic variable.
• D)Transfer payments and taxes affect disposable income but have no effect on consumption.
• E)Transfer payments affect disposable income,but taxes do not.