If President Obama wanted to decrease aggregate demand, which of the following would he tend to favor?
A)An increase in government spending, because it will increase the size of the public sector.
B)A decrease in government spending, because it keeps the public sector small.
C)An increase in transfer payments, because it has a larger multiplier than tax changes.
D)An increase in taxes, because it would not make the public sector smaller.

Question

Quizplus · Accepted Answer

Decreasing government spending would lead to a decrease in aggregate demand by reducing the amount of money in circulation. Option A is incorrect because an increase in government spending would increase aggregate demand. Option C is incorrect because transfer payments would also increase aggregate demand. Option D is incorrect because an increase in taxes would also decrease aggregate demand, but it would not necessarily keep the public sector from shrinking.

If President Obama Wanted to Decrease Aggregate Demand, Which of the Following