The effects on aggregate demand of an open market purchase and a tax cut are similar.

Question

Quizplus · Accepted Answer

Both an open market purchase and a tax cut increase aggregate demand by injecting more money into the economy. An open market purchase involves the central bank buying government bonds, which increases the money supply and reduces interest rates, leading to increased investment and consumption. A tax cut puts more money in people's pockets, which they can use to consume or invest. Both of these policies increase the aggregate demand, leading to economic growth.

The Effects on Aggregate Demand of an Open Market Purchase