What action might the government take if it wanted to offset the effect of a fall in consumer confidence on AD?
A)decrease the budget deficit
B)decrease transfer payments
C)decrease government purchases
D)decrease taxes

Question

Quizplus · Accepted Answer

Decreasing taxes would increase disposable income, which would increase consumption and therefore offset the fall in consumer confidence on AD. Decreasing the budget deficit, transfer payments, or government purchases would all decrease total spending and therefore could potentially worsen the impact of a fall in consumer confidence on AD.

What Action Might the Government Take If It Wanted to Offset