Which one of the following is TRUE about the effects of fiscal policy?
A) A decrease government spending will increase aggregate supply.
B) A tax change does not have any direct or indirect effects on aggregate demand.
C) An increase in government spending will increase aggregate demand.
D) An increase in government spending will reduce aggregate demand.

Question

Quizplus · Accepted Answer

An increase in government spending will increase aggregate demand. When the government increases spending, it injects more funds into the economy, leading to an increase in overall demand for goods and services. This can, in turn, lead to higher prices and increased economic activity. Conversely, reducing government spending can lead to decreased demand and lower economic activity. A tax change can have indirect effects on aggregate demand by affecting disposable income and consumer spending, but it is not a direct driver of aggregate demand. Option A is incorrect because a decrease in government spending will generally decrease aggregate demand by reducing the amount of money flowing into the economy. Option D is also incorrect because an increase in government spending will not generally reduce aggregate demand.

Which One of the Following Is TRUE About the Effects